As a business owner in financial trouble, you may be wondering whether Chapter 11 bankruptcy is right for you and your business. It is filed less commonly than Chapters 13 and 7, but Chapter 11 is still used more frequently than other types of bankruptcy. Here, you will learn more about Chapter 11 and about how it can benefit your business.
Am I Eligible for Chapter 11?
Any person or business can file for Chapter 11 protection with the help of a Chapter 11 Attorney. Businesses can be as small as a sole proprietorship, or as large as a multinational corporation. Many people do not know that Chapter 11 is accessible to individuals, as it’s commonly used by large companies.
The Debtor in Possession Rule
When a Chapter 11 petition is filed, the business or individual becomes a debtor in possession. With this position comes most of the responsibilities and rights of a trustee, except for the right of compensation. A debtor in possession can sue to avoid creditor transfers. Court approval is required for the use of some of these powers, and any creditor can seek a trustee replacement if they believe it suits the interests of the estate.
The Chapter 11 Process
- The process begins with a disclosure statement, which must be approved by the court. This statement describes the debtor’s plan for reorganization and repayment of debts, and it must tell the creditors whether it is possible for the business or individual to reorganize.
- The next part of the process is confirmation of the debtor’s plan, which is voted upon by the creditors. For confirmation, the plan must be approved by a judge and all impaired creditors (those who will receive less than what they’re owed).
- After confirmation, the plan is implemented. Most plans require the help of a plan agent, a neutral third party who handles creditor payments. Plans must outline how the individual or business will continue operations so that creditors can receive continued payments.
Discharge
A confirmed reorganization plan stipulates when debts will be discharged, which usually occurs when the majority of creditor payments are completed. The biggest obstacle in the filing of Chapter 11 bankruptcy is cost; these cases are also complex, requiring the help of a Chapter 11 Attorney at an additional expense. Chapter 11 bankruptcy cases can also be contentious, as creditors haggle over who will receive the most substantial payments. You can find more info at Stlbankruptcyfirm.com.
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