What to Expect from the Chapter 11 Bankruptcy Process
Accomplished California bankruptcy attorneys guide you through every step
Your business hit a rough patch and you thought you could ride it out with a line of credit. But the downturn continued and you pleaded for patience from your creditors. Now you know that without serious help, your business will not survive. You may find such help through a Chapter 11 reorganization bankruptcy, a process that allows you to make necessary adjustments, continue operations and repay your creditors over time. At the Law Offices of Michael Jay Berger, we have decades of experience shepherding Southern California businesses of all sizes through bankruptcy. We’re knowledgeable and ready to answer your questions. We will be focused on your best interests and work tirelessly to deliver the best results possible for your company.
How Chapter 11 bankruptcy begins
Owners of businesses can file Chapter 11 voluntarily to get immediate protection from creditors. In some cases, one or more creditors may file a petition for an involuntary Chapter 7 to preserve their chances of getting at least partial repayment of the debt in the event that the company fails.
If you file voluntarily, which is most often the case, you have the choice of filing as an individual or a non-individual. The first type of filing is appropriate for sole proprietors and general partners. The second is used by corporations.
A Chapter 11 petition requires extensive documentation identifying the interested parties and disclosing all facts pertinent to the case. Key points covered in the documents submitted must include:
- The financial status of the company
- Current income and expenditures
- Detailed and complete list of assets and debts
- List of contractual obligations
Petitioners must pay a case filing fee of $1,167 and a $571 administrative fee. Petitioners can ask to pay these fees in installments. When you file the petition, you may be appointed the “debtor in possession,” which means you can continue to run the company during the Chapter 11. You become accountable to the bankruptcy court and you have a fiduciary duty to act for the good of your creditors.
Developing your reorganization plan
The key to a successful business bankruptcy is developing a reorganization plan that is feasible for the business and acceptable to your creditors. You have 120 days after filing the petition to submit your proposed plan. Mandatory elements of the plan include:
- Assignment of creditor claims to classes based on similarities
- Designation of classes as impaired or unimpaired. Impaired classes are those who have claims that your plan alters in any way. These creditors get to vote on your plan. Unimpaired creditors are those unaffected by the plan and so do not vote on it.
- An explanation of how you intend to treat impaired creditors
- A summary of how you intend to implement your plan
You should also submit a disclosure statement, which provides information to creditors about your financial situation. This is your opportunity to persuade your creditors to vote for your plan.
If you do not submit your plan on time, the creditors may propose their own plan. However, if you file under Subchapter V as a small business, you have the exclusive right to file a plan.
Approving your reorganization plan
With luck, your creditors will fall in line and vote to adopt your plan. But any party in interest can object, and in many cases, competing plans are submitted. There follows a period of negotiation before parties reach final agreement or the bankruptcy court rules. When the plan is approved, the debt is restructured and the debtor assumes the obligations enshrined in the plan.
This explanation is necessarily abbreviated. We’re sure you have questions, and we look forward to answering them at your initial consultation.
Contact an accomplished California lawyer for Chapter 11 bankruptcy
Based in Beverly Hills, the Law Offices of Michael Jay Berger represents clients in Chapter 11 bankruptcy proceedings throughout Southern California. Call our firm at 310-271-6223 or contact us online.