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Chapter 11 Bankruptcy New Haven Connecticut Chapter 11 Bankruptcy Attorney Bankruptcy under Chapter 11 of the Bankruptcy Code is often referred to as “business reorganization.” While Chapter 11 is available to both businesses and individuals, it is rarely used by individuals, because of cost. Chapter 11 allows qualified individuals and businesses to reorganize their obligations and pay their debts over time. Businesses that choose to take advantage of Chapter 11 relief may continue to operate their business while paying their ongoing debts, and reorganize their prior debts. A business debtor begins the Chapter 11 bankruptcy process by filing a petition and schedules with its local bankruptcy court. Once the debtor files its Chapter 11 petition, an “automatic stay” goes into effect which prohibits the business’ creditors from making any attempt to collect debts, including starting or continuing lawsuits, foreclosures or repossessions. Along with the filing of the petition, or shortly thereafter, the debtor files various written “schedules” and “statements” to inform the Court of its outstanding debts, its current revenue and expenses, and existing contracts, any current or potential lawsuits, and any recent asset transfers. Often, the debtor files “first-day” motions, seeking Court approval to use cash from sales of secured goods to pay salaries, and operating expenses. Once the schedules have been submitted, the debtor must propose a disclosure statement and reorganization plan to the Court. Under Chapter 11, the creditors are able to vote on the debtor’s plan. It can take anywhere from six months to a year or more before a repayment schedule proposed in a plan is approved and in place. Under the schedule, the debtor must generally pay all tax obligations and secured debts in full, plus interest, and at least a portion of unsecured debts. Once approved, the debtor may have up to six years to repay its obligations. A Chapter 11 Bankruptcy filing has no initial qualifying requirements in terms of the amount of debt that a debtor is required to owe or the type of entity that the debtor needs to be. There are various benefits that a debtor gains from a Chapter 11 Bankruptcy filing. A business in serious financial difficulty may continue to operate without danger of immediate closure by its creditor via lawsuits, enforcement of judgments, liens as well as turnover orders. This breathing spell is intended to provide the debtor with opportunity to stabilize and propose a successful reorganization of its financial affairs. The debtor’s breathing spell lasts until the statutory time to propose a plan of reorganization which is usually 120 days or until the automatic stay if lifted by a creditor. Chapter 11 Bankruptcy can be an excellent method to deal with the financial problems of companies who have encountered excessive debts, numerous debt based lawsuits, liquidity problems, temporary downturns in business, or even the need to reject certain leases or contracts. Reorganization of business debt under Chapter 11 may at times be a much better option for the Debtor and its Creditors as opposed to liquidation under Chapter 7 Bankruptcy. If a company is facing imminent or irreparable financial damage due to such collection efforts as lawsuits, garnishments, or repossessions, but it has sound financial fundamentals, Chapter 11 is a well-established way of reorganizing. However, the legal process involves numerous filings and meetings, and should not be entered into without careful consideration to other alternatives.
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