Chapter 11 Bankruptcy Attorney Referral Service
Businesses experiencing financial difficulties, particularly in meeting all their financial obligations when they become due, have the legal option to avail of a remedy known as Chapter 11 to help them to stay afloat.
What is Chapter 11 Bankruptcy?
Chapter 11 is a group of rules found in the United States Bankruptcy Code which provides relief to a debtor by allowing it to restructure or reorganize its business in order to continue operating, regain profitability, and fulfill its obligations to creditors and other stakeholders. This legal remedy involves a court procedure of filing a petition, submission of a reorganization plan, and confirmation by the bankruptcy court.
Who Is Eligible to File?
Chapter 11 cases may be voluntary or involuntary. Voluntary petitions are filed by the debtor, which may be a corporation, partnership or limited liability company. Small business debtors may also file a Chapter 11 petition. In certain cases, individuals may also file Chapter 11 when their income or debt does not qualify them for bankruptcy proceedings under Chapter 7 or Chapter 13 of the Bankruptcy Code.
Important Features of Chapter 11
Control over business: Generally, the debtor company maintains control over the business and is legally referred to as a ‘debtor in possession’ unless the court finds appropriate grounds to appoint a trustee to take over operations. A trustee may be appointed when there is fraud, dishonesty, incompetence, and gross mismanagement of the debtor company’s affairs.
Court approval: The debtor must obtain court approval for major decisions such as the sale of assets, creation or cancellation of lease contracts, mortgage or other secured financing agreement, business expansion or closure, creation or amendments to existing vendor, licensing and other agreements, and the payment of professional fees.
Creditor participation: Secured creditors may participate in Chapter 11 proceedings, whether to oppose or support proposed debtor activities which are raised for the determination of the court. Unsecured creditors may also participate in the case, but only through a committee that is established to represent their interests.
Reorganization plans: The debtor has the right to propose a reorganization plan which contains details on how it intends to restructure its finances and operate its business in order to meet its obligations to creditors. The creditors are entitled to vote on the approval or acceptance of the plan.
After the creditors’ acceptance of the plan, the bankruptcy court may issue an order confirming the plan if it finds that the plan observes requirements such as financial feasibility, good faith of the debtor, best interests of the creditors, and meets the Fair and Equitable standard. The bankruptcy court may also dismiss the case, or convert it to Chapter 7 liquidation.
Small Business Chapter 11
Small businesses with total claims not exceeding $2,490,925.00 may also file a petition. Special procedures, however, apply to small businesses, such as:
- No creditors’ committee
- Additional filing and reporting duties
- Additional US Trustee oversight
- Submission of reorganization plan not later than 300 days from filing the petition
- Court may not require the business to submit a disclosure statement
How Can I Find the Right Lawyer?
Chapter 11 bankruptcy proceedings can help your business improve profits and attain economic viability while providing relief from the increasing pressure of unpaid creditors. This remedy, however, is available only to qualified entities and involves complex civil procedures.
The petition must be initiated in the proper venue, usually the debtor’s primary place of business or place of incorporation. The entire process can take several months to up to two years to reach a judicial conclusion. Obtaining skilled and experienced legal representation is absolutely essential in order to protect your business interests.
Finding the right Chapter 11 Bankruptcy lawyer in California can be a challenge. SFVBA referral service is composed of a network of skilled and experienced bankruptcy lawyers in your area. If you or your business organization is considering filing, contact the ARS to schedule a free initial consultation with a local, experienced, and reputable attorney that suits your legal needs.