Business Bankruptcy in Connecticut—Filing Chapter 11:

Chapter 11 Bankruptcy is often referred to as business reorganization. While Chapter 11 is available to both businesses and individuals it is rarely used by the latter due to high legal fees and administrative costs. Chapter 11 gives qualified candidates the opportunity to reorganize their obligations and pay their debts over time.  In Chapter 11 a debtor may also be able to reduce the secured portion of debts to the value of the collateral (the property which is pledged to guaranty payment of the debt.) 

Business owners that choose to file for Chapter 11 Bankruptcy may continue to operate their businesses while paying their ongoing debts and reorganize their prior debts. After filing Chapter 11, these businesses are referred to as debtors in possession and they have both the powers and responsibilities of trustees in bankruptcy cases.

A business debtor begins the Chapter 11 bankruptcy process by filing a petition and detailed schedules of assets, liabilities and financial affairs 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 further attempts 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, existing contracts, any current or potential lawsuits and any recent asset transfers. Often, the debtor also files “first-day” motions, seeking Court approval to use cash from sales of secured goods to pay salaries and operating expenses.  The creditors may form committees that represent various interests and may negotiate for their members with the debtor in possession.

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 proposed repayment schedule 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 a plan is confirmed, the debtor may have up to six years to repay its obligations.

A Chapter 11 Bankruptcy filing has no initial debt limits that a debtor may not exceed or the type of entity that the debtor needs to be, other than that it must have a legal existence. 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 creditors via lawsuits, enforcement of judgements, appointment of receivers, or the filing of liens and garnishments. This grace period is intended to provide the debtor with the opportunity to stabilize the business and propose a successful reorganization of its financial affairs. The debtor’s grace period lasts until the statutory time to propose a plan of reorganization, which is usually 120 days or until the automatic stay is lifted by a creditor.

Chapter 11 Bankruptcy can be an excellent method to deal with the financial problems of companies that 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 maintains 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 of other alternatives.


Please get in touch with us if if you have any questions, or you’re feeling uncertain about your financial future . We’re available from 8:30 a.m. to 5:00 p.m., Monday through Friday, except on legal holidays. In special circumstances, we can set up an appointment outside of our usual business hours or even on weekends.  We look forward to hearing from you.