Chapter 11 Bankruptcy
Small Business Bankruptcy Tampa Bay
LLC Bankruptcy Options
Bankruptcy laws provide a safe harbor for businesses struggling with unmanageable debt. A Chapter 11 bankruptcy provides that an individual or a business can restructure debt with the goal of keeping the business afloat and in operation. It provides for a reorganization of the business's debts, assets, and liabilities https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics.
Of all the forms of bankruptcy, Chapter 11 is the most complicated and expensive type of bankruptcy and should only be considered after considering all other legal options. It may be a good option for businesses with high debt but with sufficient assets and the goodwill required to continue to stay in business.
Many other businesses have filed Chapter 11 bankruptcy for the purpose of business debt restructuring. For example, Pizza Hut's parent company https://www.cnn.com/2020/07/01/business/npc-international-pizza-hut-bankruptcy/index.html, a company with 1,200 stores and $1 billion in debt, filed for Chapter 11 bankruptcy in June of 2020 but they continued to serve customers. They joined other household names of Chapter 11 bankruptcy companies who filed following the pandemic including: Chuck E. Cheese, J.C. Penney, Hertz, J. Crew and others.
Starting the Bankruptcy Process
The first step in a business Chapter 11 bankruptcy, after meeting with a business bankruptcy attorney to decide on the best form of bankruptcy, is to file a petition. The petition includes an intent to file a plan for reorganization as well as an information statement concerning the assets, liabilities and affairs of the business. The court will assign a trustee to your case to oversee the process and work with creditors to develop a plan to reorganize debt.
In most situations, the debtor will become the "debtor-in-possession" and will continue to operate the business as normal throughout the bankruptcy process. However, if the debtor mismanaged assets, the debtor may be removed and a "receiver" could be appointed to run the business.
Once the petition is filed, an automatic stay order is issued by the bankruptcy court. The automatic stay requires any other pending litigation against the debtor to be put on hold. The automatic stay also prevents foreclosures, judgment collections, and repossessions against the business debtor.
Meeting of Creditors
Between 20 to 40 days after the petition is filed, a Meeting of Creditors will be held, at which time the trustee will hear from creditors about their respective debts. The debtor must be present for the meeting. The debtor may be questioned under oath about certain debts, acts, property, conduct and administration of the case. The failure of a debtor to cooperate with the Meeting of Creditors, or other obligations, may result in the bankruptcy petition being dismissed.
Plan of Reorganization
Within the first 120 days after the petition is filed, only the debtor may file a plan of reorganization. This initial time period is known as the exclusive period and it may be extended by the court up to 18 months. There is another timeline after the plan is filed for the creditors to accept the plan. After the exclusive period expires, a creditor or other parties in interest may file a plan.
Once the plan is accepted, the debtor is generally considered to be free from any debt that arose prior to the bankruptcy confirmation. The debtor is bound by the payment terms of the reorganization and the bankruptcy terms supersedes (replaces) any prior contracts, arrangements, and/or debts with the creditors.
After the plan is confirmed, if any changes need to be made or issues need to be addressed, the court retains jurisdiction over the bankruptcy under the final decree is issued, which is generally governed by local rules of the bankruptcy court. Further questions on this process can be answered by a commercial bankruptcy attorney.
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