Is your business under a lot of debt burden? Are you looking for ways to keep operating?
Filing corporate bankruptcy Chapter 11 can provide the safety net your business needs to stay open.
Businesses big and small have used this option in the past. But, is it right for your business? Not all bankruptcy chapters work the same way.
That's why we're going to discuss what you should expect when filing business bankruptcy Chapter 11 and when to file.
Ready to learn more? Read on!
What Is Business Bankruptcy Chapter 11?
Chapter 11 also known as the reorganization bankruptcy is more flexible than other bankruptcy filings. It might take more time but, it's the best option in some cases. You might've heard about it being filed by companies such as General Motors, Macy's, American Airlines, among other large companies.
Yet, this bankruptcy chapter is available for small businesses and even individuals. Chapter 11 from the United States Bankruptcy Code provides the debtor with the option to restructure their debt. The bankruptcy court has to approve the reorganization plan.
This plan can help the debtor to keep operating by balancing their expenses and income to regain profitability. This bankruptcy chapter provides the option to sell all or some of the company assets to repay its claims or downsize the operation. One of the biggest advantages of filing Chapter 11 is that you can pay your debt over time instead of having to sell all the company assets.
Is Your Business Eligible for Chapter 11 Bankruptcy?
Corporate bankruptcy Chapter 11 requirements are flexible. Does a partnership, limited liability corporation or corporation own your business? If the answer is yes, this chapter is your only option.
If you're a business debtor that doesn't meet the debt limit requirements for Chapter 13, filing Chapter 11 is your only option as well. The process might take long but this chapter doesn't impose debt or income limits or requirements on debtors. Also, if you may speed the process if you meet the special limitations requirements.
How to File for Bankruptcy Chapter 11?
Like any bankruptcy filing, the process begins with filing a petition at the bankruptcy court. The filing will be at the court serving the debtor's residence or domicile. The filed petition can be voluntary or involuntary.
The difference between these is who files the petition. When creditors meet certain requirements, they may file an involuntary petition in the debtor's name. In contrast, a debtor files their own voluntary petition.
Unless ordered by the court, a debtor must file a schedule of current income and expenditures, schedules of assets and liabilities, statement of financial affairs, and a schedule of unexpired leases and executory contracts. The case filing fee for Chapter 11 is 1,167 dollars.
Also, the court will charge you 500 dollars as a miscellaneous fee. These fees must be paid upon filing. Unless the court grants permission for the debtor to pay in installments.
All voluntary petitions include information about the debtor, such as name, tax identification number, residence, and location of business assets. Also, it will include the debtor's plan or intention to file it, and request for relief under Chapter 11. Once a voluntary or involuntary petition is filed, the debtor assumes the identity of a debtor in possession.
The debtor will keep this additional identity until the debtor plan confirmation, a trustee appointment, case dismissal or conversion to Chapter 7. The debtor in possession will operate the business and perform trustee functions from other bankruptcy chapters.
Special Limitations on Chapter 11
Chapter 11 bankruptcy process can be long and tedious. But there are some special limitations that can expedite the process. These only apply to small business debtors.
These debtors must be people or entities that engage in business and don't owe more than 2,566,050 in total claims. These claims don't include debts owed to insiders of the business. An example is the family members of the owners.
If you meet these requirements, you may be eligible for any of these procedures:
1. Not Appointing Creditors' Committee
One of the biggest expenses in a Chapter 11 case is the appointed Creditors' Committee. The court appoints this committee to represent unsecured creditors.
Chapter 11 allows its members to retain attorneys and consultants at the debtor's expense. A bankruptcy court may order no creditors' committee appointment when a small business debtor files for Chapter 11.
2. Plan Deadline
In Chapter 11 bankruptcy cases, there isn't a deadline for filing the debtor's plan unless set by the court. But there's a 300 days deadline after filing by a small business debtor.
The court may grant an additional 300 days extension for filing the debtor's plan. You may only be eligible for this extension if you can show the ability to get plan approval within a reasonable time.
3. Exclusive Longer Period to File Debtor's Plan
In Chapter 11 bankruptcy, creditors may file competing reorganization plans. Most competing plans suggest liquidating or takeover of the business assets. The debtor has an exclusive right to file their plan within 120 days after filing for Chapter 11.
If you're considered a small business debtor, your exclusivity period will be 180 days. This will lower the risk of litigating the competing plans and losing your business.
4. Waiver of the Disclosure Statement Requirement
Chapter 11 bankruptcy procedure requires debtors to file a no disclosure statement for approval. In the ordinary process, the debtor will have to forward a copy of this statement to their creditors and other interested parties.
This statement must include in-depth information about the debtor and their reorganization plan. If you meet the special limitations requirements, the court may waive the disclosure statement. This can help speed the process and lower your legal costs.
Should You File for Bankruptcy Chapter 11?
Filing business bankruptcy Chapter 11 may be your best option. Deciding to file for bankruptcy is a huge decision. Chapter 11 bankruptcy is a complex process that you shouldn't take lightly.
Remember that your process might be easier and faster if you meet the small business debtor requirements. It's recommended that you consult an attorney to before starting your Chapter 11 bankruptcy process. The right attorney will discuss your options to obtain the best outcome.
Are you considering filing for bankruptcy chapter 11? Contact us today to learn more about your options.