Chapter 11 Bankruptcy

What Is Chapter 11 Bankruptcy?

Chapter 11 of the United States Bankruptcy Code allows a debtor to restructure their finances and accumulated debt through a reorganization plan approved by the bankruptcy court. The idea is to reduce obligations and modify payment terms in order to help a debtor return to profitability and continue operations while these occur. This relief is not just limited to companies, as debtors who do not qualify for a Chapter 13 bankruptcy repayment plan can also reorganize their debts through Chapter 11 bankruptcy.

In Chapter 11, a company may sell off some assets and reduce its size in order to become liquid once more by paying down some of its creditors. An individual in Chapter 11 may also sell off some assets and restructure debts in order to pay creditors over time.

Because companies are prevented from filing Chapter 13 bankruptcy, their options are limited for restructuring debt. Chapter 11 bankruptcy allows businesses to restructure their finances or liquidate in an orderly manner, while a Chapter 7 bankruptcy only allows a business to be liquidated by a Chapter 7 trustee. Filing for Chapter 11 bankruptcy is an important tool for businesses who wish to continue operating while also receiving relief from liabilities against their businesses.

Reasons For Filing Chapter 11 Bankruptcy

There are a number of reasons for filing Chapter 11, including that the filing can:

• Stop pending collection actions
• Stop lawsuits
• Stop or delay foreclosures
• Reduce the total amount of debt that must be repaid
• Repay debts over time

Unlike a Chapter 7 bankruptcy, a Chapter 11 bankruptcy does not necessitate the sale or surrender of any unnecessary assets. A chapter 11 debtor can develop a plan to repay creditors in order to retain assets and negotiate with creditors in order to protect assets. It’s important to know that the Bankruptcy Code gives identical safeguards to individuals and small businesses who are overwhelmed with debt.

The option of Chapter 11 bankruptcy is available to small businesses and has several benefits over other forms of bankruptcy. Small companies owned by partnerships, limited liability companies, or corporations may use Chapter 11 to restructure and continue to operate because it is the only form of bankruptcy that allows them to do so. To learn more about your business bankruptcy options, it’s highly recommended that you speak with a qualified Atlanta Chapter 11 bankruptcy attorney as soon as possible.

The Chapter 11 Bankruptcy Process in Georgia

In Georgia, there are several steps to complete the Chapter 11 bankruptcy procedure, including drafting a plan of reorganization with your attorney and getting it approved by your creditors. The plan must address requirements found in section 1129 of the Bankruptcy Code, which includes all of the following concerns:

• The Plan complies with the applicable provisions of the Bankruptcy Code
• The Plan is proposed in good faith and is not forbidden by law
• Payments made under the plan must be approved by the Bankruptcy Court
• The plan discloses the people who will operate the company after it is confirmed
• Obtain acceptance of the plan by creditors or pay those creditors as much as they would have received in a Chapter 7 bankruptcy (this is known as the “best interest of creditors” test)
• Obtain approval of the plan by creditors whose rights are impaired by the plan
• Obtain approval from at least one class of impaired claims

In most Chapter 11 bankruptcies for businesses, no trustee is appointed. The management of the company turns into the “debtor in possession,” and continues to operate the business rather than a trustee being appointed. The Bankruptcy Court can only appoint a Chapter 11 bankruptcy trustee in limited circumstances, such as if the court determines that the debtor is dishonest or unskilled in his or her ability to handle required business matters.

While a debtor’s management may operate as the debtor in possession, the Bankruptcy Court has ultimate authority over approving:

• Any sale of assets
• Entering into or breaking a lease
• Taking out loans during the bankruptcy
• Any borrowing, licensing, expanding, or shutting down of business operations
• Any retention of, or payment to, attorneys or other professional advisors

The experienced attorneys at Robl & Bowen can help you navigate your Chapter 11 bankruptcy, including securing the approval of the Bankruptcy Court for these needs.

The Role of Creditors in a Chapter 11 Bankruptcy

Creditors, investors, and other stakeholders may all be involved in a chapter 11 bankruptcy. When deciding whether to approve requests by the debtor, the bankruptcy court will take into account objections, arguments, and requests made by these stakeholders. Ultimately, creditors also have the right to vote on the debtor’s plan of reorganization, which controls the relationship between the debtor and its creditors after the bankruptcy is closed.

Unsecured creditors may also form an “unsecured creditors committee.” The Office of the United States Trustee will solicit the unsecured creditors at the beginning of the case to determine if there are any creditors who wish to be a part of the unsecured creditors committee. The unsecured creditors committee looks out for these interests of the unsecured creditors in a chapter 11 case, and, if possible, will work with the debtor to maximize the recovery for unsecured creditors.

Depending on the size of the company and / or the complexity of your situation, a Chapter 11 bankruptcy may take anywhere from a few months to several years. In some situations, it’s not the debtor who files for bankruptcy; instead, a group of creditors files an involuntary Chapter 11 petition against a debtor. And, even if they do not file an involuntary Chapter 11 bankruptcy, creditors can throw a wrench into the bankruptcy process which is why having an experienced Atlanta Chapter 11 bankruptcy attorney by your side is so important.

Frequently Asked Questions

Do I Have to Be Operating a Business to File Chapter 11 Bankruptcy?

Clients frequently inquire if they must operate a business in order to file Chapter 11. The short answer is no. Both businesses and individuals can file a Chapter 11 bankruptcy. A Chapter 11 bankruptcy can be used to reorganize assets, or to have a structured wind down or liquidation of a business when there are many creditors seeking to collect from the business. Even if a business has been in an extended shutdown, it can still resume operations and reorganize in order to repay creditors through a plan of reorganization.

A Chapter 11 bankruptcy may be a viable option for you or your business, but it is important to evaluate each scenario on a case-by-case basis. That is why it’s critical to select your Atlanta Chapter 11 bankruptcy lawyer carefully so that they understand how to properly advise you on your best alternatives.

Who May File Under Chapter 11 Bankruptcy?

Many people wonder if anybody in Georgia can file for Chapter 11 bankruptcy. There are now three distinct types of Chapter 11 bankruptcies available to companies — regardless of whether the company is a corporation, partnership, sole proprietorship, or limited liability company — and individuals. The regular Chapter 11 bankruptcy is one of them. Small businesses, which are defined as having total debts under $3,424,000, can qualify as small business debtors. Small businesses and individuals with debts under $3,424,000 can also qualify for a Subchapter V bankruptcy, which is a newer type of Chapter 11 bankruptcy that provides significant protection to the business or individual.

How Are Disputed Claims Resolved in a Chapter 11 Bankruptcy?

In all bankruptcies, creditors can file a “proof of claim,” where the creditor indicates how much money it believes it is owed by a debtor. These claims are frequently disputed, both as to amount and whether they are valid claims in the first place. The debtor can object to the proof of claim, where the Bankruptcy Court hears argument from both sides on whether the claim is valid or what it is valued, or can work with a creditor to value a proof of claim. The Atlanta Chapter 11 bankruptcy attorneys at Robl & Bowen have extensive experience in objecting to creditors’ proofs of claim and working directly with creditors to avoid the expense of a hearing before the Bankruptcy Court on an objection to a proof of claim.

What is the Absolute Priority Rule?

When a class of unsecured creditors does not vote in favor of the debtor’s plan of reorganization, that class of creditors must be paid 100% of the value of their claims or the owners of the debtor-business cannot retain their ownership interest in the reorganized debtor under the plan of reorganization unless they contribute “new value” under the plan of reorganization. New value is most frequently considered to be additional money contributed by the owner, but can take many different forms. This requirement is known as the “absolute priority rule,” and can be one of the most difficult hurdles for a Chapter 11 bankruptcy debtor to overcome.

What is the Disclosure Statement?

The Bankruptcy Code requires that a Chapter 11 bankruptcy debtor file and get Bankruptcy Court approval of a “disclosure statement” prior to the Court approving their plan of reorganization. The disclosure statement informs the Bankruptcy Court and creditors of the circumstances that led to the debtor filing for bankruptcy, how the debtor intends to repay its debts, and provide a general overview of the debtor and its business operations.

Contact An Atlanta Chapter 11 Bankruptcy Attorney Today

The attorneys at Robl & Bowen have years of experience representing both debtors and creditors in bankruptcy cases throughout Georgia, and our highly experienced Atlanta Chapter 11 bankruptcy attorneys are well-equipped to handle both personal and business bankruptcy cases. We’re confident that we can assist you with any problem, regardless of how complicated it may appear, because of our experience dealing with a broad range of bankruptcy-related commercial and personal legal issues. We encourage you to contact our office if you want to learn more about Chapter 11 bankruptcy or other bankruptcy choices so that you can choose which is best for you.