Chapter 11 Bankruptcy
Through Chapter 11 bankruptcy, a corporation, partnership, or individual reorganizes its debts and pays its creditors over time. Corporations most often take advantage of Chapter 11 bankruptcy because the business can continue operating even after filing.
Video: Chapter 11 Bankruptcy is Designed to Help Businesses Survive
Filing Chapter 11 Bankruptcy
To start a Chapter 11 bankruptcy case, you would file a petition with the court where you reside. Chapter 11 bankruptcy petitions can be voluntary – filed by the debtor – or involuntary – filed by creditors. Voluntary petitions must be accompanied by certain documents:
• a list of your assets and liabilities
• a list of your income and expenses
• a statement of financial affairs, listing details of your income and debts
• a list of your current contracts and leases
If you’re an individual filing Chapter 11 bankruptcy, you also have to include a certificate of credit counseling and proof of income from your employer if you received it within 60 days of filing your petition. The bankruptcy law requires individuals to get credit counseling from a government-approved credit counseling agency within 180 days of filing bankruptcy. You can use the U.S. Department of Justice’s search form to find approved credit counseling agencies near you. Or, you can call (202) 524-4100.
What Happens After You File
The United States Trustee chooses from the 20 largest unsecured creditors to create the creditors’ committee who oversees the debtor’s reorganization. The committee’s duties include negotiating the debtor’s reorganization plan and sometimes may even include proposing a plan of its own. Though the creditors committee doesn’t control the debtor’s business, the committee make may recommendations about how the business could operate more efficiently.
Approval of the Reorganization Plan
Once the debtor has come up with a reorganization plan, it has to be approved by the creditors. If the creditors don’t agree with the plan, the bankruptcy case could be converted to a C7 “liquidation” case or be dismissed. In the event of a dismissal, the business returns to its pre-bankruptcy state of operating.
The court could implement the Chapter 11 reorganization plan even if the creditors don’t agree, if the court decides the plan is fair for creditors and stockholders. Once the debtor’s plan has been approved, the court reviews it to make sure meets the requirements of the Bankruptcy Code.
How Long Does Chapter 11 Bankruptcy Take
It could take months or even years for a company to come out of Chapter 11 bankruptcy. Some companies never make it and end up liquidating under Chapter 7. After a Chapter 7 bankruptcy, your company will no longer operate.
What Happens to My Company
Your company can continue to operate even after filing Chapter 11 bankruptcy. According to the Securities and Exchange Commission (SEC), your business can even continue to trade stock on the stock market, though many companies find themselves unable to meet the standards of the major stock exchanges. While you’re bankruptcy, your stockholders will no longer receive dividend payments. Likewise, if you have bondholders, they won’t receive any interest or principal payments.
Advantages of Filing Chapter 11 Bankruptcy
• Perhaps the biggest advantage of filing Chapter 11 bankruptcy is that your business can continue to run while you’re going through bankruptcy proceedings.
• As a business owner, you maintain a certain degree of control over the bankruptcy proceedings by having input into the reorganization plan.
• You’re granted an automatic stay in which creditors cannot attempt to collect debts from you.
Video: You Should Consult a Bankruptcy Attorney, Despite the Costs
Disadvantages of Filing Chapter 11 Bankruptcy
• Chapter 11 bankruptcy is the most expensive of all bankruptcies with filing fees of $1,039. The court cost does not include any fees charged by your bankruptcy attorney.
• Your company’s stock prices may fall. Current investors could cash in their stock, decreasing the amount of assets the company has. It may be difficult to attract new investors while the company is in bankruptcy.
• The SEC reports that few companies emerge from Chapter 11 bankruptcy. The state of your company, rather than the bankruptcy filing itself, puts you at risk for Chapter 7 bankruptcy.
Filing bankruptcy isn’t an easy decision for a business or an individual to make. You should get legal advice from a bankruptcy attorney before filing Chapter 11 bankruptcy. The National Association of Consumer Bankruptcy Attorneys can help you locate a professional bankruptcy attorney in your area.
Disclaimer
We have provided information as a service to consumers. This is not legal advice and should not be construed as such. For information about filing Chapter 11 bankruptcy, seek a licensed attorney.
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