Chapter 11 Bankruptcy Explained
REORGANIZATION for corporations
Chapter 11 is a type of “reorganization” that is most often used by corporations. Filing for a Chapter 11 bankruptcy is far more costly and complex than a Chapter 7 or Chapter 13 because a debtor has to propose a plan of reorganization that provides a method to deal with its creditors. The plan may provide for the continued operation of a business or the sale of assets. Creditors are entitled to vote on the proposed plan and ultimately the court will have to approve the plan.
Once the plan is approved the debtor may be able to exit bankruptcy. A corporation can receive a discharge in Chapter 11. Small businesses may be able to take advantage of a more streamlined approach to Chapter 11 by opting for Subchapter V.
A Chapter 11 is usually filed voluntarily but it can be initiated by creditors seeking payment for goods or services that they provided. Debtors can benefit from the automatic stay which arises as soon as the case is filed. In many instances a company or individual is facing a trial date, a foreclosure, levy, or examination. The court imposes certain requirements immediately upon the bankruptcy filing, such as obtaining consent to use the cash collateral of secured lenders. The debtor will have deadlines to file monthly operating reports, to decide whether to assume or reject leases, and to file a plan and disclosure statement.
Proper legal representation is strongly recommended for Chapter 11 because of the complexity of the law. We have the necessary experience to deal with these cases as there usually are a variety of crossover issues involving corporate law, tax law, business law, and real estate law. Proper planning is necessary as it takes a lot of time and effort to keep the business alive and operational during the reorganization. Failure to succeed in a Chapter 11 will likely lead to conversion to a Chapter 7.
Contact us at (925) 472-8000 if you have questions.
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