What happens when a company files Chapter 11?
You may be a business owner who has built a prized business over the years, but because of economic uncertainty and difficult times, you find yourself burdened with significant debt. You are likely stressed and worried, and you may not know where to turn. This could be the time to talk to a Chapter 11 bankruptcy lawyer to find out more about your options.
Chapter 11 bankruptcy – often known as “reorganization” bankruptcy – gives business owners a chance to catch their breath and reorganize business affairs, debts, assets and supplier contracts. It’s a way to pause and reestablish yourself on a stronger business footing so that you can move forward into a more profitable future.
A lot of business owners ask: “what happens when a company files Chapter 11?” We would be glad to answer all of your questions and explain your various options. To learn more about how the skilled and experienced bankruptcy lawyers at Bunch & Brock can help, call us for a consultation at 859-254-5522.
How does Chapter 11 work?
Named after the U.S. bankruptcy code 11, this type of bankruptcy gives businesses time to propose a plan to restructure their debt and establish a fresh start. During this legal proceeding, the court will help a business restructure its obligations while the firm remains open and operating. We’ve all heard of large U.S. corporations that have done this, including United Airlines, General Motors and thousands of others of all sizes.
If you’ve asked yourself “how does Chapter 11 work,” then it will take a bit of time to review the process. Chapter 11 is not a speedy form of bankruptcy, but it can often be the most advantageous form for businesses that want to stay open and thrive in the future. Here are important things to remember about Chapter 11 bankruptcy:
- You must be proactive and submit a workable plan for reorganizing debt. If the business owner doesn’t submit a successful plan, the creditors may propose one of their own. This is why hiring a highly skilled Chapter 11 bankruptcy attorney is important.
- If a business proposes a reorganization plan, it must be in the best interest of the creditors.
- A business owner continues to operate the business and keeps the doors open during the proceedings. Chapter 11 is not a liquidation form of bankruptcy. The only time a court-appointed trustee steps in to run the business is in cases of dishonesty, fraud or gross incompetence.
- A judge must approve any reorganization plan.
How do Chapter 11 bankruptcies work?
You start the Chapter 11 process by hiring a specialized bankruptcy lawyer who has handled many of these types of cases. Because they are somewhat complicated, you want to make sure your lawyer knows what he or she is doing. At Bunch & Brock, we’ve helped hundreds of clients successfully walk through this process and arrive on the other side with a fresh start and optimistic outlook.
Next, you’ll want to gather all the financial operations documents and electronic files you have, including balance sheet, income statement, cash flow statement, accounts payable and receivable, outstanding debt obligations, list of assets, vendor/supplier contracts and any other agreements that are involved in the day-to-day operations of your business. Our legal team can give you a checklist to help you get started.
You want to make sure your business doesn’t make any extraordinary purchases or sales before talking to a bankruptcy lawyer. Courts keep a keen eye on the transfer of funds and debt obligations before, during and after you file for Chapter 11. If you have any questions about pending business transactions, call us first at 859-254-5522.
Next Steps: How Chapter 11 works
A Chapter 11 case starts when an attorney files a petition with the bankruptcy court. A petition can be a voluntary one, which the business owner files, or it can be an involuntary one filed by creditors that meet certain requirements. It’s always better to maintain control of the situation by filing first, before creditors do. Unless otherwise stated by the court, the business owner must also file:
- Schedule of assets and liabilities
- Schedule of current income and expenses
- Schedule of executory contracts and unexpired leases
- Statement of financial affairs.
The vast majority of Chapter 11 cases are corporations, partnerships, LLCs and businesses, but in rare cases an individual or married couple choose to file Chapter 11. There are additional documents that are required to be filed with the court in those cases.
Bankruptcy courts are required to charge a $1,167 case filing fee and a $550 administrative fee. These fees are paid to the court clerk’s office upon filing or may be paid in installments, with the court’s permission. The final installment must be paid no later than 120 days after the date of the original filing. In hardship cases, the court can extend repayment to 180 days.
While Chapter 11 requires significant planning and filing, it’s important to keep the end goal in mind. It’s a way to save your business and start fresh with a manageable debt repayment plan.
Contact a Chapter 11 lawyer today
If you’ve spent sleepless nights wondering how you’re going to keep the doors of your business open, meet payroll obligations, and pay enough debt each month to keep creditors at bay, it may be time to step back and consider your alternatives. The problem with falling behind in debt is that you feel like you’re always playing catch up. Sometimes it feels like you’re never going to be profitable again. If this is how you feel, then it’s likely time to call a Chapter 11 bankruptcy lawyer and explore your legal options. Chapter 11 reorganization can breathe new life into your business and put it on a firmer financial footing to move forward. You’ll keep the doors open and day-to-day operations will continue as you walk through the process. To find out more about how we can help, call a Chapter 11 bankruptcy attorney at Bunch & Brock at 859-254-5522.
