Chapter 11 – Bankruptcy Law
Chapter 11 is an option under the Bankruptcy Code generally viewed appropriate for businesses such as corporations, partnerships or sole proprietors due to complexity and length of the procedures and also fees involved. Also, you will find differences in the procedure for these three classes of debtor. As with other bankruptcy programs, individuals, or husband and wife, electing chapter 11 bankruptcy has to undergo credit counseling. Corporations’ personal assets are not involved in chapter 11 bankruptcy proceedings apart from the stocks belonging to the company, but partnerships may find personal assets involved and sole proprietors can assume both personal and business assets being subject to rulings. Cases specified as ‘small business’ may proceed at a faster pace and be subject to a lesser number of official demands than other cases, but to be a small business debts will have to be below roughly $2.2 million and have no creditors’ committee involvement.
Filing under chapter 11 could be at the debtor’s discretion or it may be an involuntary petition filed by creditors. All debtors must present the court with complete disclosure statements of of every debt and asset (the extent of the disclosure statement can vary depending on the type of debtor) and pay fees in excess of $1000 in addition to a repayment or liquidation plan.
Filing a voluntary chapter 11 petition means the debtor stays in charge of the business and is known as the ‘debtor in possession’. The debtor in possession boasts considerable responsibilities to look after and sees to it that the case moves along. Tardiness can have negative repercussions. A US trustee maintains a close supervisory role over the case with regards to the operation of the business requiring reports on all work related activities including operating expenses and income. The US trustee might have the case converted under the Bankruptcy code should the debtor in possession be found to negligent in proceeding with confirmation of a plan or else forget to report appropriately on the activities from the business. In addition the us Trustee is paid by the debtor in possession. Additional officials can be involved in complex on-going chapter 11 petitions such as a case trustee or an examiner who works together with the trustee. Creditors’ committees may be formed of unsecured creditors to cooperate with the debtor in possession and might also hire other specialists with the courts discretion.
Chapter 11 requires that a repayment plan must cover what types of claims need to be resolved and exactly how they are going to be addressed. The plan with the disclosure statement must provide sufficient information for creditors to evaluate the viability of the plan. There is an opportunity to vote by ballot to the creditors who can not necessarily anticipate full pay back from the plan. Additionally, creditors are able to provide other plans.
After filing, there is the regular period where an automatic stay will come in to act regarding the actions on most creditors. On the other hand, creditors have the ability to petition the court for the right to foreclose on property under special conditions like in the case of single asset real estate debtors. This kind of action on the part of creditors and other possible motions related to stays can be forestalled by the confirmation of a plan or commencement of repayment of interest on debt to the creditor.
Compliance to the requirements of a confirmed plan in most cases results in discharge of debts accrued before confirmation. But, under chapter 11, only individuals are granted discharge by means of confirmation to a liquidation plan.
Audus Zinkman is an expert on San Antonio Bankruptcy. He has worked in the legal field for over ten years. His main focuses are on San Antonio Chapter 11, Chapter 7, Chapter 12, Chapter 13, foreclosure defense, and credit card defense. For more information please visit his site, San Antonio Attorney.