Chapter 11
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Chapter 11 bankruptcy is very much like chapter 13 in that your debts are readjusted with new terms and payment plans to repay your debts. This chapter is normally reserved for business owners, LLCs, partnerships and corporations. Though mostly used by businesses it can also be used by individuals when dealing with unsecured debt of at least $336,900 or secured debt of at least $1,010,650. There’s no limit to the amount over these dollar amounts under chapter 11.
To file under chapter 11 you must also take credit counseling courses prior to filing and before your case is discharged.The court fee for filing chapter 11 bankruptcy is $1000 dollars, plus another $39 dollars for administrative fees. Both fees must be paid when filing the petition.
Under chapter 11, the debtor remains in possession of assets and is normally allowed to operate the business while in process of filing to try and make the business profitable again, though all this happens under the supervision of the court. All major business decisions are usually approved by the court and if at any moment the debtor becomes inefficient in the business production the court will appoint a trustee.
The development of the repayment plan begins with the debtor preparing a disclosure statement and a repayment plan no later than 120 days from the time of petition. For publicly traded companies, the SEC reviews all paperwork submitted by the debtor company. The SEC’s role is very limited, their function is to review statements and disclosures to be sure the debtor is reporting honestly and to make sure that the share holders have some representation. The repayment plan for chapter 11 must be voted on by the creditors. The creditors may disagree with the repayment plan, but if the court feels the plan is fair, it can bypass the vote and approve the plan anyways.
If the court disagrees with the submitted plan, and the 120 day limit is reached, the creditors may take the responsibility of drafting up a plan themselves and submitting it to the court for consideration. In cases like this, things can get messy since the court may end up with two or more different plans that can complicate the process.
Generally chapter 11 bankruptcy ends up being more expensive and time consuming for the debtor. Since these types of cases can last for several months legal fees can amount quickly.
Once the plan is agreed upon, the case will be discharged at which point the approved plan becomes a contract, and the debtor is bound to the new provisions of this plan until the debt is repaid. All previous pre-chapter 11 contracts are no longer valid.
Also under chapter 11 a liquidation plan can be implemented. This plan would allow the debtor to liquidate their own assets in a more efficient manner. This approach also allows the creditor to take an active role in the liquidation since the proceeds are specifically for satisfying the debts they seek to be repaid.
Other bankruptcy chapters:
