Bankruptcy – Chapter 11
A Chapter 11 bankruptcy is a type of bankruptcy available for businesses who do not want to go out of business but would rather restructure their debt and stay in business. For this reason, a Chapter 11 bankruptcy is known as a “reorganization.” This type of bankruptcy can financially rehabilitate the business by reorganizing and restructuring its debts and expenses to be more manageable. While there is no significant reduction in the debt of the business, a Chapter 11 bankruptcy allows a business to remain open, and not dissolve the company or liquidate its assets.
Chapter 11 Bankruptcy Process
Chapter 11 bankruptcy cases are typically voluntary and begin with the filing of a petition in federal bankruptcy court. While companies will file for bankruptcy in the same jurisdiction (area) as their company, bankruptcies are always handled at the federal level, and federal laws apply. While most cases involve the company voluntarily filing for Chapter 11 bankruptcy, there are some rare instances where creditors, when they see that their bills are not paid, can come together to initiate an involuntary Chapter 11 bankruptcy filing against the company.
Chapter 11 bankruptcies are different than Chapter 7 bankruptcies. Chapter 11 bankruptcies allow a company to continue the normal operations of the business during the bankruptcy process. However, it is important to note that the federal bankruptcy court will have decision-making authority with respect to large business decisions of the company during the time of the bankruptcy including any sale of assets, mortgages, leases, additional contracts, fees, expenses, or the decision either expand or reduce the business. Along with the bankruptcy court, creditors of the company will have the legal ability to either support or reject certain actions that require bankruptcy court approval.
Chapter 11 bankruptcy does not typically discharge any debts of the company, but rather allows the company to “reorganize” their debts in such a way that their plan will allow them to pay their creditors. Typically, a business will submit their own reorganization plan regarding debt restructuring to the federal bankruptcy court. After submission, the creditors of the company have the ability to vote on the proposed plan and determine if this suits their interests. There are situations where the creditors will reject a reorganization plan and create an alternative plan, often with the requirement to pay the debt off sooner than the company’s plan. Eventually, the creditors and business will find agreement regarding the reorganization plan, and the bankruptcy through the plan will continue for 3-5 years as the business repays its debts.
Establishing a reorganization plan within a Chapter 11 bankruptcy allows a company financial breathing room to begin to regain functionality and profitability for the business. If a foreclosure process has begun on the business for example, a Chapter 11 bankruptcy can provide enough time for the business to either sell or develop the real estate through the bankruptcy. In Chapter 11 bankruptcies, businesses can actually terminate or renegotiate their leases and executory contracts, choose to keep or surrender their property, and even renegotiate or eliminate union contracts.
Let Us Help You Today
If you are a business that is considering filing for bankruptcy, visiting with an experienced bankruptcy attorney will help you understand your legal rights and options. Contact the experienced West Palm Beach bankruptcy attorneys today at Kelley, Fulton & Kaplan at 561-264-6850 for a free consultation.