File chapter 11 bankruptcy
Chapter 11 bankruptcy is also called as reorganization and can be filed by individuals, partnerships and corporations. Usually individuals avoid filing this type of bankruptcy because this type of bankruptcy can be too complex and expensive. In contrast to the chapter 13 bankruptcy, this type of bankruptcy does not have any limit to the amount of debt.
How does chapter 11 bankruptcy work
The chapter 11 bankruptcy starts when the debtor files a petition in the bankruptcy court. This bankruptcy can be filed voluntarily or involuntarily. Unless asked by the court the debtor is supposed to file the following documents:
Details of the assets and the liabilities
Details of the un-expired leases and the executory contracts
Statement giving the financial affairs
In case the debtor is an individual or a couple then a certificate of credit counseling, copy of any repayment plan developed during the credit counseling, if employers have received any payment within 60 days before filing of bankruptcy then proof of that, statement giving the net monthly income, any expected increase in income or expenditure after the filing of bankruptcy For the filing of chapter 11 bankruptcy the courts charge $1,000 as filing fee and $39 as miscellaneous administrative fee. In case you are unable to make the payment in one go, with the permission of the court you can make the payment in installments. However, you can make a maximum of four installments. The final installment is supposed to be made not more than 120 days of filing the petition. In case you are unable to pay the fee then this can result in dismissal of the petition.
If the petition has been filed voluntarily then it should include the usual information like the name of the debtor, social security number, the residence address, in case of a business the location of the principal assets, a request of getting relief under the chapter. If an involuntary bankruptcy is filed then the debtor is addressed as Âdebtor in possession. In such a situation the debtor can have control over the assets even while undergoing the reorganization. The debtor can possess the assets till the reorganization plan is confirmed, or a trustee is appointed or the bankruptcy is converted to a chapter 7 or 13 bankruptcy. Usually the appointment of trustee takes place in a small number of cases and hence the debtor can operate the business and carry out functions that are carried out by the trustee in other chapters. When filing bankruptcy under chapter 11, the debtor is supposed to submit a plan of reorganization and a disclosure statement. The disclosure statement should contain all information about the assets, liabilities, and the business proceedings of the debtor. This information should be sufficient for the creditor to make an assessment of the debtors repayment plan.
If it is small business entity then the business need not require a separate disclosure statement if the court feels that the information provided in the plan is sufficient. However, the plan needs to contain the classified accounts and the amount of claims that need to be paid and how will it be handled. After the disclosure statement is approved by the bankruptcy court, the creditors are asked to vote and this is collected for the confirmation of the plan. For individuals who file under chapter 11, the proceedings are similar to that of chapter 13. The debtor is supposed to pay off all the debts within a period of 3-5 years.
The debtor in possession
When a debtor a business or corporation, partnership files under chapter 11 the stockholders are not affected nor is the personal asset of the debtor is put at risk. In case of a sole proprietorship, the identity of the business is not different from individual hence it would include both the business as well as the personal assets.
The debtor under section 1107 functions like the trustee in other bankruptcy cases.
The creditors Committee
The creditor committee has a major role to play in a chapter 11 bankruptcy. This committee is appointed by, the trustee. This usually consists of creditors who have unsecured debts. This committee assesses the performance of the debtor and also the operation of the business.
The creditors committee can also take the help of an attorney after getting permission from the court in performing their duties.
The plan of reorganization
Within 120 days of the order of relief the debtor is required to file a plan of reorganization. In case the debtor fails to submit the plan or the creditor fails to review the plan within 180 days then any of the creditors are free to submit a plan.
The plan of reorganization is supposed to distinguish the creditors based on classes and the interest and what each creditor would receive under the plan. The creditors can be classified as secured, unsecured or employees.
The plan is supposed to be fair enough and should be acceptable by all the identified classes of the creditors. This plan is also required to be approved by the bankruptcy court. In case any class of creditor has an objection to the plan, the bankruptcy court can still approve the plan if it feels that the plan is justified and good enough to repay the debts.
Understanding the laws involved in chapter 11 bankruptcy filing are difficult and hence it is advised that you take the help of an experienced attorney who would be able to help you out with the paperwork and guide you on the right track.
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