Bankruptcy Process: Chapter 11

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Bankruptcy can be a long and complicated process.  Each district has its own rules and the procedure changes depending on which Chapter the debtor is filing under.  Chapter 11 bankruptcy is referred to as reorganization and typically is used by businesses.  To read a full description of what Chapter 11 bankruptcy is read this article. Courts have set criteria for qualifying for Chapter 11 bankruptcy which are laid out in this article.

Chapter 11 bankruptcy can be filed voluntarily by the debtor or involuntarily by creditors.  To begin filing, a debtor files a petition with a bankruptcy court along with a schedule of assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, and a schedule of executory contracts and unexpired leases.  If a debtor is filing as an individual they may also have to file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling, evidence of payment from employers received 60 days before filing, a statement of monthly net income and any anticipated increase in income or expenses after filing, and a record of any interest the debtor has in federal or state qualified education or tuition accounts.  The court will charge the debtor a $1000 case filing fee and a $46 miscellaneous administrative fee; these fees may be paid in installments.  Normally these fees are due at filing but a debtor can request an extension of up to 180 days.  If the fees are not paid the case will be dismissed.

After filing for Chapter 11 bankruptcy the debtor becomes a debtor in possession.  This means a debtor keeps possession and control of its assets while undergoing a reorganization.  The debtor stays in possession until reorganization is complete, the case is dismissed or converted, or a trustee is appointed.  Trustees are rarely appointed in Chapter 11 cases.  If a trustee is appointed, they will monitor the debtor’s operation and must be paid a quarterly fee until the bankruptcy is over.  This fee can range from $250 to $10,000.

Generally, a written disclosure statement and a plan of reorganization must be filed with the court.  This statement must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor’s plan of reorganization.  The requirements may be tweaked at a judge’s discretion.  After the court approves the disclosure statement a confirmation hearing will be held to confirm the plan.  The debtor has an exclusive 120-day period to file a plan which can be extended up to 18 months.  After the exclusivity period is over a creditor or trustee may file a competing plan if the debtor did not submit one.

Parties of interest may file an objection to confirmation of a plan of reorganization.  If so the court will hold a hearing on confirmation.  After the plan is confirmed the court will discharge all remaining debt prior to the date of confirmation.  Then the debtor must make payments on the remaining debt.  Plans may be modified after confirmation before substantial consummation of the plan.

This is only a sample of the complicated process of Chapter 11 bankruptcy.  If you are considering declaring bankruptcy, or are a creditor involved in one, you can contact Stone Law at 732-444-6303 or leave us a message on our website.