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Pros and Cons of Corporate Chapter 11 Filing

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Complimentary Evaluation

Arietta Law Complimentary Evaluation

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Pros:
  • Automatic stay as to lawsuits, foreclosures, collection actions, creditor actions, etc.
  • Temporary deferral of pre-petition unsecured debt payments and with limitations, secured debt payments and pre-petition rent claims.
  • Possibly avoid and recover involuntary preferential transfers – property taken by execution (levies)
  • Preserve going concern of business
  • Reduce interest rates to current market levels in certain situations
  • Sell property free and clear of liens and interests if necessary
  • Reinstate obligations that have been accelerated due to default (notes, leases)
  • Borrow post-petition by giving lender a “priming lien”, “super administrative priority”, or other protection
  • Extend payment of unsecured tax debts up to five years
  • Assume or reject executory contracts and unexpired leases
  • Reorganize financially (debt extension, orderly liquidation or retention of property, sale of assets, repayment of debts over time, assumption or rejection of executory contracts and unexpired leases)
  • Can receive a discharge of pre-petition unsecured debts upon plan confirmation
Cons:
  • Stigma
  • Stress for business owner
  • Loss of privacy
  • Need to operate profitably and maintain good records
  • Court control of all activities not in the ordinary course of business (approval needed for sales, financing)
  • Restrictions on compensation of debtor’s insiders
  • High costs (lawyers and other professionals retained by the debtor, also have to pay for costs of official creditors’ committee and possibly of secured creditors)
  • Duration of the case from the petition date to the plan confirmation date, which will likely exceed initial expectations.
  • Creditor motions and other filings that detract from reorganization efforts.
  • Burdensome U.S. Trustee record keeping and reporting requirements on a monthly basis
  • Restrictions on use of cash collateral (rents and accounts receivable that have been pledged)
  • If do not reorganize, may end up being converted to Chapter 7