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How a Subchapter V Repayment Plan Can Meet the “Best Efforts” Test
Subchapter V of the Bankruptcy Code is a debt relief remedy for small business owners in financial distress. It was enacted as a cure for the difficult challenges faced by small businesses attempting to restructure using the traditional Chapter 11 process. A reorganization plan in Chapter 11 often precludes small business owners from retaining equity, […]
Using Asset Sales to Advantage in a Chapter 11 Bankruptcy
Chapter 11 bankruptcy is a legal mechanism for businesses to reorganize their debts while maintaining operations. An effective strategy within this process is the sale of assets, which can offer numerous advantages to the debtor company. However, the Bankruptcy Code places rules and restrictions on such sales, which debtors must follow carefully in order to […]
How the Absolute Priority Rule Affects Creditor Payments in Chapter 11
The absolute priority rule dictates the hierarchical order in which creditors’ claims are addressed during a debtor’s Chapter 11 reorganization. It is intended to ensure that senior creditors are paid in full before junior creditors or equity holders receive any distribution, thereby promoting fairness and predictability in the process. The absolute priority rule was established […]
Is Chapter 13 a Better Option for a Sole Proprietor Than Chapter 11?
For a small business owner facing financial distress, choosing the right bankruptcy option is critical to protecting their assets while achieving debt relief. While Chapter 11 bankruptcy is an option, it is typically a complex and costly process that may not be the best fit for sole proprietors. Chapter 13 bankruptcy, by contrast, offers a […]
Chapter 11 Filing Requires Intensive Documentary Preparation
A Chapter 11 bankruptcy allows a business in financial distress to reorganize and restructure its debts while continuing to operate, with the goal of returning to solvency. Filing for Chapter 11 is a complex process that requires substantial documentation. The bankruptcy trustee needs to have a complete picture of the company’s finances in order to […]
Availability of Chapter 11 Relief for Individuals
Chapter 11 bankruptcy is usually associated with business entities seeking to reorganize their debts and continue operations. However, individuals can also pursue this form of relief if their financial circumstances make other forms of bankruptcy, such as Chapter 7 or Chapter 13, unsuitable. This option may be viable for individuals with significant debt levels exceeding […]
Limits on Chapter 11 Debtors’ Use of Cash Collateral
In a Chapter 11 bankruptcy, the debtor is generally allowed to remain in control of their business as a debtor-in-possession. However, this control is subject to restrictions. One of these is prohibition of use of cash collateral, which refers to cash, securities, accounts receivable, inventory and other liquid assets that may be pledged as security […]
How to Combat Adversary Proceedings Objecting to Debt Discharge
An adversary proceeding is a case within a bankruptcy case. It is a lawsuit filed to resolve disputes during the bankruptcy process. One common scenario is when a creditor objects to the discharge of certain debts, asserting that those debts are not eligible for discharge under the Bankruptcy Code. Such proceedings are initiated by filing […]
When Might a Bankruptcy Court Appoint a Chapter 11 Trustee?
In most Chapter 11 bankruptcy cases, the company or individual filing for protection acts as a debtor-in-possession (DIP). The debtor retains control of the business and continues its daily operations under the oversight of the bankruptcy court. The debtor-in-possession has the fiduciary responsibility to manage the business in a way that maximizes the value of […]
When Can Chapter 11 Plans Include Nonconsensual Third-Party Releases?
Nonconsensual third-party releases are clauses in a Chapter 11 reorganization plan that discharge certain non-debtor parties — such as the debtor’s officers, directors, shareholders, insurers, sureties or affiliates — from liabilities owed to creditors. These releases are nonconsensual because they bind creditors who do not consent to them, extinguishing their claims against these third parties. […]
