Filing Banckruptcy? Chapter 7, Chapter 11, Chapter 13

Chapter 11 Bankruptcy

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Chapter 11 is unique in that the Debtor remains in possession of all his assets and his ongoing business. In other words, the Debtor itself (or himself or herself) is the Trustee for the estate. While this is a great advantage, it does not come without its costs.

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.Often there is litigation associated with any Chapter 11 case, either with the Debtor attacking the creditors, or vice versa.

Chapter 11 can be quite expensive and is always time consuming. There are constant administrative burdens which must be met. Regular reports must be filed with the court and the U.S. Trustee's Office, and fees must be paid. Since Chapter 11 cases can last from several months to several years, the professional fees (attorney, accountant, C.P.A.) can grow quite rapidly. The court filing fee is currently $830.00.

The key to a successful Chapter 11 bankruptcy case is pre-bankruptcy planning. As is the case with Chapter 13 and, to an extent, with Chapter 7, very few Chapter 11 cases are successful when the Debtor arrives at the attorney's office needing to file the petition immediately. This is true with any chapter of the bankruptcy code, but is particularly true in a chapter 11.

Why? Because the administrative burdens, time constraints, financial pressures, and other problems are so great, that a failure to plan ahead, and prepare as much documentation as possible prior to filing, will usually spell disaster. All you will end up doing is paying your attorney several thousand dollars for a few months' breathing room, only to end up where you were to begin with.

The ultimate purpose of a Chapter 11 case is to get a Plan of Reorganization (repayment) confirmed by the court. This is by no means a simple task and the requirements for doing this are rather complex (see links above) and will not be discussed here. 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, and the more skilled attorneys will explore all avenues to improve your business and financial position.