There are many types of bankruptcy that you can file, based on your situation and what you are looking to accomplish. Chapter 11 is a form of bankruptcy reorganization that is available to corporations, partnerships, and individuals. With no limit on the amount of debt for which you can file, Chapter 11 bankruptcy is most often the choice for a large business seeking to restructure its debt. Filing for Chapter 11 bankruptcy is not usually the best choice for individuals, because filing for Chapter 7 or Chapter 13 is much simpler and less expensive on a smaller scale.
Recently, the news has been full of Chapter 11 bankruptcy filings by retail stores that are struggling with modern online shopping. You can read more about this “Retail Apocalypse” here.
The Basics of Filing for Chapter 11 Bankruptcy
When a business files for Chapter 11 bankruptcy, it will usually remain in possession of its assets. Operation of the business can continue under the supervision of the courts and for the benefit of its creditors. While under the supervision of the courts, if the debtor’s management is deemed ineffective or not totally honest, then a trustee can be appointed to watch over the business and manage it.
Chapter 11 bankruptcy is usually referred to as a reorganization of debt. You will see businesses that are on the brink of closing up shop use Chapter 11 as a last attempt to save the business and stay in good standing with their creditors and partners in the business.
After a business has filed for Chapter 11 bankruptcy, a creditor’s committee is appointed from the 20 largest unsecured creditors who are not insiders to the business. This committee represents all of the creditors, while providing oversight for the debtor’s operations. It acts as a person or group with which the debtor can negotiate a plan for reorganization.
For the Chapter 11 filing to work, a plan needs to be confirmed by affirmative votes of the creditors. Their votes are used as function of the amount of their claim against that debtor. If said debtor cannot get the votes to confirm a plan, the debtor can then try to force a plan upon the creditors and get the plan confirmed despite the opposition. In order to do this, though, the debtor must meet certain statutory tests.
How Does Someone File for Chapter 11 Bankruptcy?
The debtor has 120-day period in which they maintain an exclusive right to file a plan of action. This time period may be extended or reduced by the court based on the case and the debtor that is filing. However, this time to file can be no longer than 18 months. After the exclusive time period has expired, a creditor or the case trustee may then file a competing plan.
A chapter 11 bankruptcy case can continue for many years, unless the court, the committee, or another party of interest acts to ensure the case has a timely resolution. The creditor’s right to file a competing plan provides the debtor with incentive to file a plan within the time period and can also act as a check on any excessive delay in the case.
The Success Rate of Chapter 11 Bankruptcy Filing
Chapter 11 is usually the most flexible of the bankruptcy chapters to file for, but it is also the hardest to generalize. With it being so flexible, it can be the most expensive to the debtor as well.
The rate of success for those who file for Chapter 11 reorganization is sadly low, and is often shown at a success rate of 10% or less. There are many complex rules and requirements when filing Chapter 11 bankruptcy, and this often increases the cost to file the case and secure a plan for confirmation. In most cases, to file for reorganization under Chapter 11, the debtor is essentially adding to the debt in order to reorganize the debt they currently have.
Due to all of the rules and requirements, you will see most individuals who are looking to erase personal debt file for Chapter 13 rather than Chapter 11. Chapter 13 bankruptcy offers a plan to the debtor at a lower cost and allows the individual to keep possession of assets while catching up on secured debt and letting go of unsecured debt at the end of the plan. You can find more information on Chapter 13 bankruptcy here.
There is no easy way to reorganize your debt, and it can be an especially long process if you are filing as a business or partnership. But with a basic understanding and a plan for where you want your business to go, filing for Chapter 11 reorganization may be the best way to get your business back up and moving in the right direction.
If you have more questions about Chapter 11 bankruptcy, or bankruptcy in general in the state of California, contact the Law Firm of Hathaway, Perrett, Webster, Powers, Chrisman & Gutierrez today!
Hathaway Perrett Webster Powers Chrisman & Gutierrez, APC is a debt relief agency pursuant to 11 U.S.C. 528(a)(4) and assists individuals, families, and businesses file for bankruptcy relief under the Bankruptcy Code. This website is a communication under California Rule of Professional Conduct 1-400. No legal relationship is created by the use of this website and no legal advice is provided. No guarantee or warranty is provided that your case or matter will achieve any particular result and testimonials and endorsements provided on this site do not constitute a guarantee, warranty, or prediction about your matter or case. This communication is made on behalf of Hathaway Perrett Webster Powers Chrisman & Gutierrez, APC and DANIEL A. HIGSON, State Bar No. 71212 is responsible for its contents. All information contained on this website may be factually substantiated by a credible source, including data from the United States Public Access to Court Electronic Records (PACER) system. Detailed data and information is available on request.