KY Chapter 11 Bankruptcy Reorganization Attorneys
Bankruptcy laws are meant to help individuals and businesses with large amounts of debt get a fresh start.
Quite the opposite of the generally negative connation that bankruptcy has in our society, it can actually be a superb opportunity for a new financial beginning. The solution offered under Chapter 7 of the federal bankruptcy code is based on liquidation, and applies to both people and businesses. In contrast, the main principle of Chapter 13 bankruptcy is reorganization and it is limited to individuals. As far as businesses are concerned, Chapter 11 provides debt relief reorganization comparable to Chapter 13. Although individuals are eligible for Chapter 11, it is most often used by businesses, both large and small.
Chapter 11 extends its protections to corporations, partnerships, and sole proprietorships (as well as individuals) that need to restructure debt and pay it back over time. It allows the debtor to keep certain assets that would likely be lost under Chapter 7. Once a Chapter 11 bankruptcy petition is filed, 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.
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 (1) secured claims secured by the same collateral, (2) unsecured claims of similar type and priority, and (3) 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.
Last, the plan requires a method of implementation. Examples of what the plan can provide include that the debtor will retain part of the estate’s property, that the debtor may merge or consolidate, that a lien may be modified, that the debtor may amend its charter, or that 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.
Serious financial problems require serious legal representation. With over 35 years’ experience in our community, the Fayette County chapter 11 bankruptcy lawyers at Bunch & Brock are committed to providing each of our clients with a high level of personal service and real solutions to financial troubles. If you are a business owner who is considering filing for bankruptcy or if you want to know more about the process, contact us today to schedule a consultation. We will assess your situation, explain the rules and help you determine whether bankruptcy is right for your circumstances. Let us work with you to make the best plan for eliminating or repaying your debts. We encourage you to contact our office by calling 859-254-5522 or filling out this online form.