Chapter 11 Bankruptcy

Chapter 11 bankruptcy is available to anyone, including businesses and people.

What is Chapter 11?

For businesses, Chapter 11 allows the debtor to continue operations by means of a plan of reorganization, rather than undergoing a Chapter 7 liquidation.  Chapter 11 is unique in that the debtor remains in possession of all its assets and its ongoing business. In other words, the company itself is the trustee for the bankruptcy estate. While this is a great advantage, it does not come without its costs, and there are many fiduciary responsibilities.

For individuals, a Chapter 11 can be thought of as a "fully-custom" Chapter 13, in which the plan filed with the court is custom-written from scratch, as opposed to using the court-mandated Chapter 13 plan template.  Chapter 13 is not available for businesses.  Because Chapter 11 is so expensive, very few individuals file for Chapter 11.

There are great powers afforded to Chapter 11 debtors, such as the ability to object to your creditors' claims, avoid liens, reject leases and contracts with no penalty, extend the time for repayment to your existing creditors or even reduce the amount owed or paid to them.

Why does Chapter 11 Exist?

By enacting Chapter 11, Congress gave the debtor a chance to restructure its finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for its stockholders. Because Chapter 11 envisions an ongoing business, the most likely persons to have knowledge of the operation and details of the business are the existing management who normally continue operations during the Chapter 11 process.

A major rationale for business reorganizations is that the value of a business as an ongoing concern is greater than it would be if its assets were sold. When a business develops financial difficulties, such as not being able to pay its creditors due to cash flow problems, it may consider filing a Chapter 11 bankruptcy. If the business can extend or reduce its debts, or drastically lower its operating costs, it often can be returned to a viable state. Generally, it is more economically efficient to reorganize than to liquidate, because doing so preserves jobs and assets. Cooperation among the various interests, however, is crucial to a successful reorganization.

Who Can File for Chapter 11?

Chapter 11 is primarily for businesses who wish to remain in operation by reorganizing their financial affairs, and also for certain individuals with very large debts who exceed the strict debt threshold limitations of Chapter 13 qualification.  Businesses who wish to liquidate will usually file under Chapter 7, although there is such a thing as a "Chapter 11 liquidation plan."

How Does Chapter 11 Work?

Many steps are involved in Chapter 11 cases, and the process can be very complex.  For a detailed overview of the components, click here (pdf).

The ultimate purpose of a Chapter 11 case is to get a Plan of Reorganization confirmed by the court. The Plan is basically a contract with one's creditors as to how they will be repaid, and from what source. The creditors have to vote for the Plan in certain numbers, or if they do not vote in sufficient numbers for the Plan, they may be forced to accept the Plan if other requirements are met.  There are many ways to formulate a Plan, subject to the requirements and limitations of the Bankruptcy Code.

How Much Does Chapter 11 Cost?

Relative to other bankruptcy firms, our fees are about average.  Please call us to discuss your situation and obtain a firm quote. 

We offer free phone consultations. For complicated situtations, or if you are not sure whether bankruptcy is right for you or your company, we also offer an in-person consultation for $150, lasting about an hour. We spend the time with you to answer all of your questions, and help you decide whether bankruptcy is even right for you, and, if not, then what you can do to avoid it.