Chapter 11 Bankruptcy Lawyer
Maintaining Control of Your Business While You Find Relief from Debt
Challenging economic times have brought many large companies and corporations to the brink of financial ruin.
Rather than pursuing a complete liquidation, filing for Chapter 11 bankruptcy may be an option for business reorganization. A skilled Chapter 11 bankruptcy lawyer can advise and guide corporations through the legal process, arriving on the other side with significantly less debt and space for a fresh start.
For more than 30 years, Bunch & Brock, Attorneys at Law, in Lexington, Kentucky, has helped financially stressed companies navigate through the complexities of corporate reorganization.
Our reputation for excellence stems from building and maintaining relationships, keeping lines of communication open and providing quality legal representation. Our deep knowledge of corporate governance, law and finance enables us to meet executives at the conference table, review income statements and balance sheets, research the terms of existing debt, and create a strategy for reorganization. We act as legal counselors and strategists who can partner with corporate leaders to explore options and establish the best way forward. The goal of our Chapter 11 bankruptcy attorneys is to support your goals so the company or organization can resume and achieve its mission. Chapter 11 bankruptcy may be the legal tool that most effectively facilitates this.
How Our Years of Experience Help Your Chapter 11 Bankruptcy Process
Attorneys at our firm exhibit extensive knowledge of the Chapter 11 bankruptcy process, working toward the best resolution options for your company. We possess years of courtroom experience and have represented multiple corporate clients seeking to reduce their debt through Chapter 11. We will advise, research and explain legal remedies in terms that are clear and actionable.
To discuss your case, contact us by calling 859-254-5522. Our law firm ensures confidentiality. We graciously accept referrals from legal colleagues and former clients alike.
What is Chapter 11 Bankruptcy?
Federal bankruptcy laws govern how companies and organizations go out of business or recover from crippling debt. Many large companies file under Chapter 11 of the Bankruptcy Code rather than Chapter 7, because they can still run their business, control the bankruptcy process and attempt to become profitable again while seeking protection from their creditors.
As in other bankruptcies, an automatic stay applies to collection efforts by creditors. Management continues to run the day-to-day business operations, but all significant business decisions must be approved by a bankruptcy court.
The Bankruptcy Court can grant complete or partial relief of the company’s debts and contractual obligations. Typical debts and contracts which can be cancelled include:
- Secured and unsecured loans
- Real estate leases
- Supply and vendor contracts
- Loan contracts
- Executory contracts.
The goal of the Bankruptcy Court is to help corporations and organizations avoid a cessation of operations. To this end, the court will review operations, explore a reorganization plan and halt the actions of creditors, vendors and lenders to create space for a corporation to find its footing and establish a path forward toward solvency and renewed effectiveness.
Starting the Chapter 11 Process
The first step is to hire a reputable law firm with bankruptcy attorneys who are experienced in Chapter 11 cases and to meet promptly with those attorneys. There is little time to spare when a company’s debt load is onerous and mounting. The attorney will meet with corporate executives, explain the Chapter 11 process, answer management’s questions and begin to gather corporate documents needed to support a Chapter 11 filing.
When you work with our team at Bunch & Brock, every day throughout the legal process, your Chapter 11 bankruptcy attorney will be available for consultation and guidance and will work hand in hand with management to make sure all tasks are handled effectively and with minimal interruptions to business operations. The goal is to allow the company to maintain day-to-day operations in a normal fashion, despite the concurrent Chapter 11 legal proceedings.
Can a Business Be Forced into Bankruptcy?
Yes. Creditors can initiate an involuntary bankruptcy proceeding against a business. This occurs in infrequent situations when creditors are concerned that the business is squandering or misappropriating assets that should otherwise go toward paying debts owed them. The Bankruptcy Code, Section 303, states the requirements for an involuntary bankruptcy case.
In the petition for bankruptcy, creditors must state which of two circumstances justifies the involuntary bankruptcy:
- the debtor isn’t paying debts as they come due, or
- within the last 120 days, a custodian, receiver, or agent took control of the debtor’s property to enforce a lien.
The debtor can respond to the petition after it is filed, the court will set a hearing and decide whether the bankruptcy should go forward. If the debtor fails to respond, the debtor will have to participate in the bankruptcy.
If a debtor company has 12 or more creditors, the involuntary petition requires (a) three or more creditors whose claims are not contingent or subject to a bona fide dispute as to liability, and (b) the creditors’ claims must total at least $16,750 more than the value of any lien on property of the debtor securing such claims held by the petitioning creditors, as of April 2019. If the debtor has fewer than 12 creditors, the Bankruptcy Code requires only one qualifying creditor to file the involuntary petition. Also, additional creditors can join in the involuntary petition once the case is filed. See 11 U.S.C. Section 303(c).
If the debtor does not oppose the involuntary bankruptcy petition, the court shall order relief against the debtor under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case only if (a) the debtor is generally not paying such debtor’s debts as such debts become due, unless such debts are the subject of a bona fide dispute as to liability or amount, or (b) within 120 days before the filing of the involuntary petition, a custodian was appointed or took possession of substantially all of the debtor’s property.
Chapter 11 Bankruptcy FAQs
Many struggling business owners have similar questions and concerns about the bankruptcy process.
At our Lexington, Kentucky-based corporate bankruptcy law offices of Bunch & Brock, we offer these answers to frequently asked questions for the benefit of potential clients who can rely on us for honest case analyses and dedicated representation. Our team of bankruptcy lawyers has represented numerous clients throughout the state, with a special concentration in Central and Eastern Kentucky.
What is bankruptcy?
As with consumer bankruptcy, business-related bankruptcy is governed by federal law and is designed to offer a fresh financial start. Several big-name companies have declared bankruptcy and emerged successfully on the other side, including Delta Airlines, General Motors, Sbarro’s and Eddie Bauer. Of course, many have gone bankrupt and out of business — Circuit City, Bennigan’s, Napster and Hollywood Video, to name a few. The difference comes down to whether the business was liquidated or reorganized.
What is Chapter 7 bankruptcy?
A business that finds itself struggling with debt can file for a Chapter 7 bankruptcy in much the same way as an individual, although the doors of the business must be closed upon the filing of the bankruptcy case; during the case, its assets will be totally liquidated. In many situations, this is actually the best solution and allows a business owner to start completely fresh. Under Chapter 7, a company goes out of business entirely and sells off its remaining assets, using the proceeds to pay back debts to investors as well as creditors. Secured creditors, whose loans are backed by collateral and other low-risk investors are the ones who get repaid first. If there are not enough assets to cover what is owed, some entities such as stockholders and unsecured creditors simply do not get paid. If a secured creditor has your personal guarantee on the debt, we can advise as to the effect upon you.
What is Chapter 11 bankruptcy?
By filing for Chapter 11, a distressed business may be able to rehabilitate itself while staying largely under the control of the business owner. The owner presents a plan for court approval, which may include trimming costs and seeking new sources of revenue, while temporarily holding creditors at bay. The goal of filing for Chapter 11 bankruptcy protection, as opposed to Chapter 7, is to become profitable. Creditors have an incentive to work with the owner and make compromises, since they generally would not get better terms in a Chapter 7 action.
How common is business bankruptcy?
The coronavirus has resulted in a big increase in bankruptcies in 2020, with 610 bankruptcies as of Dec. 13, according to S&P Global Market Intelligence. That compares to 552 bankruptcies over the same period in 2019. According to Yahoo finance, the downturn in the economy due to the coronavirus, has pushed plenty of companies that were teetering on the brink of bankruptcy right over the edge, including Chuck E. Cheese, Gold’s Gym, Century 21, and Brooks Brothers. Retail establishments were particularly affected, but the pandemic-fueled recession affected other sectors as well, including car rental giant Hertz, mall operator CBL & Associates Properties, Internet provider Frontier Communications, oilfield services provider Superior Energy Services, and hospital operator Quorum Health.
Will a business bankruptcy affect my personal credit?
That depends on the type of business entity you used to conduct your business. If you did business as a sole proprietor, you are personally responsible for all of the business debts. If you operate your business as a partnership and you are a general partner, you are personally responsible for all of the business debts along with the partnership. If all of the partnership debts are not paid from the liquidation of the partnership property, the general partners remain responsible for the unpaid debt. If you are a limited partner in a business or if you do business as a corporation or a limited liability company, under most circumstances, you are not legally responsible for business debts.
What happens to my corporation if I file personal bankruptcy?
Personal bankruptcy does not affect the corporation, since the corporation is a legal entity separate and distinct from its shareholders. However, your ownership of the corporation is an asset in your personal bankruptcy case, which may be controlled by your Chapter 7 trustee. It is important to know the effect of bankruptcy upon the business before you file a Chapter 7 case.
How long does the typical corporate bankruptcy take?
A small-business Chapter 11 bankruptcy proceeding commonly takes between six months and one year in court, depending on complexity. A Chapter 7 liquidation bankruptcy proceeding can be expected to take three to four months, but sometimes longer, depending upon the situation.
Why do I need the assistance of a corporate bankruptcy lawyer?
A corporation or LLC must be represented by an attorney before the bankruptcy court. Business bankruptcy laws can be complicated, and the process can be intimidating. The bankruptcy courts and trustees are not allowed to give legal advice and can provide only limited assistance in completing the extensive paperwork that must be filed. In addition, creditors may bring litigation in order to settle their claims. Therefore, it is important to have a corporate bankruptcy attorney represent the interests of the bankrupt company in this court proceeding.
How Our Chapter 11 Bankruptcy Lawyer Works for You
Our Chapter 11 bankruptcy attorneys follow required procedures that allow you to keep certain assets that would likely be lost under Chapter 7. The process is as follows:
- Your Chapter 11 attorney files a bankruptcy petition.
- Your corporate bankruptcy lawyer helps you come up with a reorganization plan.
- Your corporate bankruptcy attorney must provide provisions and treatment methods.
Once the petition is filed with the bankruptcy court, the automatic stay kicks in and most collection efforts must stop. At that point, the company becomes known as the “debtor in possession” and can continue carrying on business until a restructuring plan is adopted. A debtor keeps that identity until the plan of reorganization is confirmed, the case is dismissed, the case is converted to Chapter 7, or a Chapter 11 trustee is appointed.
The debtor must file the plan of reorganization within 120 days from the date that the bankruptcy petition was filed. However, the time can be extended up to 18 months by the court. Conversely, the time may be shortened to 100 days for small businesses and businesses with debts of less than $2 million. All creditors must approve the plan within 180 days of the order of relief, or 160 days if the period was reduced by the court. If the debtor does not submit a plan within the timeframe, or if any of the creditors fail to agree to it, the creditors themselves may submit a competing plan for the court to consider.
While there are many permissible provisions that may help settle the claims, there are also several specific provisions that a plan of reorganization under Chapter 11 must contain. First, all claims must have a classification that groups them with substantially similar claims. The classes of claims are typically categorized as:
- secured claims secured by the same collateral
- unsecured claims of similar type and priority
- equity interests
For debtors with a complicated capital structure, there may be dozens of different classes in a plan. For the average small business debtor, the plan may have only a few classes: one for the secured lender, one for trade and other unsecured creditors, and one for common stock interests.
Second, the plan must contain a method of treatment for each claim in a class, including all impaired classes. The treatment will depend on a number of factors, including the nature of the claim, the value of the debtor, and the value available for distribution to stakeholders. An impaired class is a group of similar claims whose legal rights against the debtor are being changed by the reorganization plan, usually by being paid far less than what they are owed. All impaired creditors who get something under the plan get to vote on it, but the vote is counted by the whole class.
Generally, at least one class of impaired creditors must vote in favor of the plan before the court can confirm it.
Examples of what the plan can provide include that:
- the debtor will retain part of the estate’s property,
- the debtor may merge or consolidate,
- a lien may be modified,
- the debtor may amend its charter, or
- an outstanding security may have an interest rate change.
Pursuant to Section 1123(a)(7), the plan must contain only provisions that are consistent with the interests of creditors and equity security holders and with public policy with respect to the manner of selection of any officer, director and trustee under the plan and any successor to such officer, director and trustee.
A Chapter 11 Attorney at Bunch & Brock Is an Exceptional Choice
There are a lot of law firms out there, but few achieve the level of client service exhibited by the attorneys at Bunch & Brock. Our highly skilled lawyers have years of top-notch legal education and unparalleled courtroom experience. There are few legal matters that arise in a Chapter 11 proceeding that our attorneys haven’t dealt with in prior cases, which ensures there will be few, if any, unanticipated legal obstacles along the way.
With our care, a struggling business can restructure its finances and maximize the financial return to owners and creditors. Clients can rest assured that the significant professionalism and training of a Bunch & Brock Chapter 11 lawyer in Lexington will establish a level of trust that is reassuring. We welcome any initial inquiries and would be pleased to discuss our process and level of commitment. Please call us at 859-254-5522.
In the Chapter 11 Process the Bankruptcy Court Controls Major Decisions
During the Chapter 11 reorganization process, corporate management maintains its leadership role and control over ordinary operations, but management gives up control over major decisions in the company. The Bankruptcy Court steps in and controls all major decisions. Some of these significant decisions include:
- entering into or failing to honor a lease of real or personal property
- expanding or shutting down business operations
- any sale of property or other assets (except for inventory sold by a retailer in the ordinary course of business)
- any financing arrangements, including a mortgage, that allow the business to borrow money after the Chapter 11 case is filed
- modifying or entering into vendor, union, licensing, and other agreements.
The purpose of this is to establish an independent arbiter (Bankruptcy Court) that makes prudent decisions while the Chapter 11 process moves forward toward completion.
Approval of the Chapter 11 Plan by the Bankruptcy Court
Approval of a proposed Chapter 11 plan is referred to as “confirmation.” Ultimately, the Bankruptcy Court holds the power to confirm a proposed plan, and to do so the court must find that the reorganization plan meets several requirements, including:
Feasibility. The Bankruptcy Court must find that the proposed Chapter 11 plan is likely to succeed (is feasible). The struggling business must prove to the court that it has the ability to raise sufficient funds over the plan’s duration to meet its financial obligations going forward.
Best Interests of Creditors. To gain confirmation, the Chapter 11 plan must be in the best interests of its creditors. The “best interests” test requires that creditors receive at least as much under the Chapter 11 plan as they would if the struggling business’s case were converted to a Chapter 7 liquidation.
Good Faith. The Bankruptcy Court must determine that the Chapter 11 plan has been set forth in good faith and not by means prohibited under the law.
Fair and Equitable. The Chapter 11 plan also must be “fair and equitable,” which requires that:
- Secured creditors must be paid, over several months or longer, at least the value of their collateral. A creditor is considered to be “secured” if it holds a mortgage against actual property or a lien against things like equipment and inventory.
- The company’s owners cannot retain anything of value because of their equity interests unless all other financial obligations are paid in full, either upon confirmation or over time.
What Are the End Results of a Chapter 11 Bankruptcy?
If the Bankruptcy Court approves a Chapter 11 plan of reorganization, the company will continue to operate as a sustainable business enterprise. If the company is unable to reorganize, the Bankruptcy Court may approve a plan of liquidation. This process may take anywhere from several months to more than a year.
Under some circumstances, it is not. In every case, the experienced Chapter 11 bankruptcy lawyers in Lexington at Bunch & Brock will skillfully and effectively advise management.
Examples of Chapter 11 Business Bankruptcies in KY
If you are considering Chapter 11 Bankruptcy, you are not alone. Nationwide, the American Bankruptcy Institute reported that commercial chapter 11 filings increased 29 percent during calendar year 2020 as the total of 7,128 climbed past the 5,519 recorded during calendar year 2019. The 2020 commercial chapter 11 filing total was the highest total since the 7,789 filings registered in 2012.
Here are a few that have been filed in the Eastern District of Kentucky Bankruptcy Court:
Some older cases of Chapter 11 include:
- New Horizons Medical Center – It filed for bankruptcy protection under Chapter 11, owing $4.33 million to the USDA and disputed litigation debts of almost $6 million to creditors
- Trinity Coal Corporation – This Kentucky and West Virginia mining company was forced into an involuntary Chapter 11 bankruptcy in 2013 after it stopped repaying $120 million to lenders. The company successfully resolved more than $325 million of claims under its plan.
- Applebee’s — A 33-unit franchisee of the popular restaurant chain Applebee’s sought to close eight restaurants and to reorganize its operations in Chapter 11 bankruptcy after unsuccessfully seeking concessions from landlords in order to keep the unprofitable units open.
- SouthEast Telephone, Inc., — This Kentucky-based telecommunications company filed for Chapter 11 bankruptcy and was approved to sell substantially all of their business assets for approximately $7.3 million.
Contact Bunch & Brock, Attorneys at Law
Safeguard your business’s financial future by contacting an experienced Chapter 11 bankruptcy attorney at the law offices of Bunch & Brock. We recognize that this is a challenging time for corporate executives as well as employees, and we will do all we can to create a smooth and efficient Chapter 11 process. We are here to answer your questions, counsel you on your options and facilitate a legal process that minimally impacts the company’s day-to-day operations. We are available for initial consultations at 859-254-5522. We respectfully welcome your call.