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Chapter 11 Bankruptcy- How It Works and Who Is Eligible For Filling It

If you are a business owner burdened with debts, chapter 11 can save you from the nightmare. Chapter 11 is usually for business and involves large amounts of money. However, individuals may also be eligible for it. Chapter 11 is less common than chapter 13 and chapter 7 because both are cheaper and faster. But if you are a business and are burdened with debt, chapter 11 can allow you to start fresh and with a clean slate.

Understanding Chapter 11 bankruptcy

Also known as “reorganization bankruptcy”. Chapter 11 bankruptcy is for businesses that want to get rid of debts while continuing to operate. The business can file for it willingly or may be forced to do so if four or more creditors file a petition against them in the bankruptcy court.

Once you file for chapter 11 bankruptcy, the creditors cannot take any actions against the business. After filing for bankruptcy, the business has four months to set up a reorganization plan; however, it can take up to eighteen months. Once that is done, creditors can propose their reorganization plans. To come up with an effective and feasible reorganization plan, you need to take help from a skilled and experienced Chapter 11, Subchapter V Bankruptcy Attorney.

The attorney will represent you in court and take care of all legal matters, including building a reorganization plan. A reorganization plan is a contract between the creditor and the business in debt that tells how the business is going to operate and also pay their finances. The majority of the plans consist of downsizing in order to reduce expenses and use that money elsewhere.

Once the plan is submitted, creditors have the option of accepting it or rejecting it. However, creditors usually accept it as the next step is filing for chapter 7 bankruptcy which is a disadvantage for creditors because, in chapter 7 bankruptcy cases, all the assets are liquidated which means the creditors end up getting very little or nothing at all.

There are three levels of creditors, including secured, priority, and unsecured. All the creditors must vote in favor of the reorganization plan for the plan to be approved by the court. If the creditors vote against it and it is rejected, then the business has to ask the judge to force the creditors to vote in favor of the plan.

You can complete the repayment plan whenever you want; there is no time limit. Most businesses take between five months to two years. In order to file for chapter 11 bankruptcy, you need to pay around $1718. But that is just the initial fees, and the whole process can cost up to millions of dollars. 

Understanding how does chapter 11 bankruptcy work

Businesses need to seek the help of chapter 11 bankruptcy when they are financially stressed, often due to temporary issues. Chapter 11 bankruptcy can help a dying business stay running and operating. It offers businesses debt relief and helps them get back on the right track. In order to understand how it works, let us break it down:

1) Stops collection process

Chapter 11 bankruptcy works by putting the collection process to a stop. Once business files for bankruptcy, the creditors are prohibited from pursuing you and bothering you so that you, the creditors, and the court can get the peace of mind they need to address the financial concerns and issues. The automatic stay stops and prohibits:

  • Evictions
  • Collections trial
  • Payment requests
  • Seizing property
  • Till taps and bank levies

2) Debtor in possession

Chapter 11 bankruptcy allows the filer to continue running the day-to-day activities of the business as a debtor in possession. No bankruptcy trustee is put in charge like in other bankruptcy cases.

3) Financial plan

The main goal of Chapter 11 is to create a payment plan that the creditors, court, and filer all agree with and which will allow the company to grow and prosper. The reorganization plan consists of payment due dates, modifying interest, and other conditions. It usually consists of downsizing the company in order to reduce expenses and free up assets.

If the entire creditors vote in favor of the plan, then it becomes a contract, and the filer is discharged of debt immediately. If the creditor is not happy with the plan and rejects it, but the court still approves the plan, then the filer has to make all the required payments.

Who is eligible for filing for chapter 11 bankruptcy

As mentioned above, the chapter 11 bankruptcy allows the debtor to continue running their business while creating a reorganization plan and financial affairs. Any person who is eligible to file for chapter 7 bankruptcy is also eligible to file for chapter 11 bankruptcy. This includes corporations, businesses, partnerships, and individuals. You don’t necessarily need to own a business to file for chapter 11 bankruptcy.

Individual debtors whose debts are greater than the limit for chapter 13, then you should consider filing for a chapter 11 bankruptcy. The debtor does not need to be insolvent to file a chapter 11 bankruptcy. Chapter 11 is permitted as long as the debtor needs to take control over their finances and reorganize them.

A stockbroker and a commodity broker are not allowed to file for chapter 11 bankruptcy. However, they may file under a chapter 7 bankruptcy.

In a nutshell

Chapter 11 bankruptcy can help failing businesses get a hold of their financial problems and get back on track. It can help relieve the pressure of debts and encourage the incorporation of new strategies that will help the business prosper. If you are a business owner or an individual with many assets and want to start fresh financially, you should consider filing for Chapter 11 bankruptcy.

To win your bankruptcy case, you need to get in touch with a skilled and experienced attorney. Get in touch with the best attorneys at Amourgis & Associates, Attorneys at Law. The attorney will build your case, represent you in court, take care of legal matters, and communicate with the creditors so that you can focus on growing your business.

Piyushi

Blogger By Passion, Programmer By Love and Marketing Beast By Birth.

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