Chapter 11 Bankruptcy is also Known as ‘Reorganization Bankruptcy’

Chapter 11 reorganization is the most sophisticated and powerful form of bankruptcy protection and it is available to all businesses and also to individuals. The attorneys at ABL: Bankruptcy are here to help you or your business seek a fresh start while continuing to operate under Chapter 11.

Unlike a chapter 7, which is a traditional bankruptcy, a chapter 11 is known as a “reorganization bankruptcy.”

In a reorganization bankruptcy the filer modifies its debts and payments while also, ideally, continuing to operate. Although debt restructuring can sometimes be accomplished through the informal process of negotiating with creditors (known as a “workout”), when such workout attempts are not successful, chapter 11 reorganization can be a very powerful tool for protecting the filer and providing a court-supervised venue for formal debt restructuring.

A chapter 11 reorganization fundamentally restructures the relationship between the filer and the filer’s creditors.

In a chapter 11 it is the filer who often sets the amount paid to creditors that need to be paid and the filer also typically has the capacity to reject or modify nearly any contract to which it is party.  If you are in the midst of the “workout” process or need to proceed into a formal chapter 11 reorganization, ABL: Bankruptcy highly recommends that you have highly competent legal and financial representation as you proceed through either process.

Why having qualified legal representation is important if you are considering chapter 11 reorganization.

Our Albuquerque bankruptcy lawyers can represent you or your company and they can also recommend appropriate and highly competent financial advisors to support you as you proceed through the reorganization process.

As you read the top-level information below you will easily understand the reasoning behind this recommendation – it is not a process that you want to go through without a highly competent legal and financial team supporting you every step of the way.

The reasons to have our chapter 11 reorganization attorneys represent you in your efforts to obtain a restructuring or a “workout” of certain debts:

  • Avoidance of Stigma and Minimize Potentially Harmful Disclosure
  • A Much Simpler Process, You Simply Provide Information and Let us do the Heavy Lifting and Negotiations with Creditors
  • Reduction of Expenses and Likely More Favorable Workout Terms Reached
  • Management Can Pay More Attention To The Real Business Of The Business
  • Reduces Delays in Implementing Business Decisions

[gravityform id=”2″ name=”What’s Next? Take The First Step.”]

Or Take a More In-Depth Look At Chapter 11 Bankruptcy

What happens after you file chapter 11 reorganization?

If, however, a “workout” is not possible or practicable in your situation, you should be aware that under chapter 11 reorganization, the filer usually remains in possession of its assets, and continues to operate as before. The primary change after filing is that the assets and operations of the filer come under the supervision of the bankruptcy court, the filer must keep detailed financial records and report those records to the U.S. Trustee, and the filer must be considerate of the interests of creditors.

After filing, the filer becomes known as the “debtor in possession” and in this capacity must act as a fiduciary for the creditors; this means that the business and/or personal financial activities, for the most part, must not be absolutely contrary to the interests of the creditors. chapter 11 reorganization by the best Albuquerque bankruptcy attorneys ensures that the filer is able to take full advantage of the arsenal of tools available for reorganizing personal or business financial situations.

A chapter 11 reorganization filing allows:

  • For the selective power to cancel or reject contracts
  • The right to seek court authority to use business assets even if the assets are serving as collateral for certain debts
  • The right to seek court authority to employ professionals in order to be well informed regarding finances and options
  • The right to seek to modify the terms of certain debts
  • The right to seek to a cram-down of a plan of reorganization upon a creditor that is not cooperative.

Automatic stay protection

Another important benefit for the filer is that all assets are protected by the automatic stay, which is effective immediately upon filing. No creditor can take any non-bankruptcy action against the filer and all non-bankruptcy cases must be stayed until the bankruptcy court approves otherwise. The stay provides some breathing room for the filer, during which negotiations can take place to try to resolve the difficulties in the filer’s financial situation.

Workout scenarios

If you are an individual or a small business considering filing for chapter 11 reorganization or are in need of a “workout,” click here.

The experienced bankruptcy attorneys at ABL: Bankruptcy will discuss the reorganization process with prospective filers, including the amount of time needed to file the required petition and schedules.

Filing for emergency reorganization

In some instances, it may be necessary to file an emergency reorganization case, in which case our attorneys and staff will work diligently to have your reorganization case filed as quickly as needed. After filing the petition for reorganization, the filer must attend an “initial interview” with the U.S. trustee at which time the U.S. trustee will evaluate the filer’s viability, ability toReorganize, inquire and analyze the filer’s business plan, and also explain certain filer obligations, including the filer’s responsibility to regularly file various reports.

Depending upon the client objectives and concerns, there may be emergency motions filed with the Court and hearings immediately scheduled. reorganization is an extremely powerful and sophisticated option for businesses and individuals to restructure debts in order to continue to operate; the right to seek reorganization is a right that has been granted and guaranteed by Congress; and if you are in need of reorganization or would like more information – call the chapter 11 reorganization specialists at ABL: Bankruptcy to evaluate the options available to you.

Chapter 11 for Small Businesses

Single asset real estate

There are special reorganization provisions for small businesses and also for businesses that primarily only have only one real estate asset (these are known as “Single Asset Real Estate” or “SARE” filers). The provisions pertaining to SARE cases can often make the SARE reorganization more difficult and there are special time periods that apply to small business cases.

The bankruptcy code treats a “small business case” somewhat differently than a regular bankruptcy case.

Determination of whether a filer’s case would be considered a “small business case” requires the application of a two-part test:

  1. The filer must be engaged in commercial or business activities (other than primarily owning or operating real property) with total debts of $2,000,000 or less.
  2. The case must be one in which the U.S. trustee has not appointed a creditors’ committee, or the court has determined the creditors’ committee is insufficiently active and representative to provide oversight of the debtor.

In a small business case, the filer must, among other things, provide more extensive disclosure of the business operations and finances, including filing the most recently prepared balance sheet, statement of operations, cash-flow statement and most recently filed tax returns.

The small business case is also subject to ongoing filings with the court concerning its profitability and projected cash receipts and disbursements, and must report whether it is in compliance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure and whether it has paid its taxes and filed its tax returns.

Because certain filing deadlines are different and extensions are more difficult to obtain, a case designated as a small business case normally proceeds more quickly than other chapter 11 cases. For example, only the filer may file a plan during the first 180 days of a small business case. This “exclusivity period” may be extended by the court, but only to 300 days, and only if the debtor demonstrates by a preponderance of the evidence that the court will confirm a plan within a reasonable period of time.

Chapter 11 for ‘Large’ Businesses

How is a ‘large’ reorganization case different?

The primary difference for large reorganization cases is that in larger cases, a creditors’ committee is formed. The creditors’ committee can play a major role in chapter 11 cases. The committee ordinarily consists of creditors who hold the largest unsecured claims against the debtor. The committee may consult with the filer on the administration of the case, investigate the conduct of the debtor and the operation of the business, and participate in the formulation of a plan.

A creditors’ committee may, with the court’s approval, hire an attorney or other professionals to assist in the performance of the committee’s duties. A creditors’ committee can be an important safeguard to the proper management of the business after filing.

For the filer, the creditors’ committee can also be an impediment to confirming a plan of reorganization, so it is very important to hire an experienced reorganization attorney in order to ensure that your case is not blocked by an unruly creditors’ committee.

After filing the petition to reorganize

After filing the petition for reorganization, the filer generally has 120 days to formulate and file a Plan of reorganization with the bankruptcy court.
If the debtor fails to submit a plan during the 120 day period, or if creditors fail to consent to the debtor’s plan during the first 180 days, any of the creditors can submit their own proposed plan.

The court is sometimes faced with conflicting plans, and it is generally in the filer’s best interest to ensure that the filer’s plan meets the requirements for confirmation and that it is timely submitted to the court for consideration.

‘Plan of Reorganization’

A plan of reorganization must designate classes and interests under the plan and what these classes of creditors will receive under the plan.

For example, secured creditors might be one class, unsecured trade creditors a second, and employees a third. The plan must be fair and equitable and must provide an adequate means for its own execution. Generally, all identified classes must accept the plan of reorganization by a majority vote in number of claims and at least 2/3 in dollar value, within each class.

Who approves the reorganization plan?

The bankruptcy court must approve the proposed reorganization plan after determining that it is in the best interests of the creditors.

Although each class of creditors must normally approve the reorganization plan, the bankruptcy court can still approve a plan over the objections of one or more classes of creditors.

This power is called the “cram down” power. The filer is limited in how and when it may use the cram-down powers, for example, the filer must adhere to the absolute priority rule which mandates that all creditors in one class must be paid in full before ANY creditors in a lower class receive anything towards their claim.

In general, any debts not paid in full as part of the plan are discharged to the extent of any portion remaining at the end of the reorganization plan. Most plans are five years long, so most filers are able to discharge the amount of unsecured debts remaining after the five year plan is completed.

Which debts can be discharged?

Discharged debts (i.e., old debts that a filer is no longer required by law to pay) are the key to a fresh start, and they allow individuals and businesses to operate without the suffocating burden of overwhelming debt service. Most, but not all, unsecured debts incurred prior to filing for reorganization are dischargeable, including business debts, back rent, and credit card bills. The discharge operates as a permanent order to creditors that prevents them from taking further legal action and communication with the filer, including telephone calls, letters, and personal contacts.

Ultimately, the availability of discharge depends on the type of debt and the chapter under which the bankruptcy proceedings are conducted (chapter 11 in the case of most businesses). .

Emerging from chapter 11 reorganization

Once the commitments formulated in the plan of reorganization have been satisfied, the company or individual can emerge from chapter 11 reorganization, free from most unsecured debts, and get back to business as a leaner and more profitable enterprise.