Chapter 11 Bankruptcy Guide
by JennaWhat is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is a reorganization of debt, and it is typically filed by businesses, not individuals (though in some cases individuals who do not qualify for chapter 7 or 13 bankruptcy may declare chapter 11 bankruptcy instead.)
Basically you and/or your creditors propose a reasonable repayment plan for your debt, and then it is approved by the courts. You put it into action, and your creditors leave you alone as long as you keep to the agreement. You get to continue running your business instead of having to close it.
Sole proprietorship vs. corporation:
If your business is a sole proprietorship then your personal assets can be included in the chapter 11 bankruptcy negotiations. If your business is a corporation however, your personal assets, and those of any stockholders are not considered during chapter 11 bankruptcy proceedings.
The chapter 11 bankruptcy is not discharged (finished) until you complete your repayment plan in full. This means that once you file for chapter 11 bankruptcy it could be several years before you get your discharge and are able to move on. The amount of time it takes will depend on the amount of the overall debt, and your (or your businesses’) ability to repay.
The Cost of Declaring Chapter 11 Bankruptcy:
The court fees for declaring chapter 11 bankruptcy are a $1000 filing fee and a $39 administrative fee. These fees are separate from any fees that your lawyer will charge for handling your bankruptcy proceedings. The court fees are payable in up to four installments.
The Chapter 11 Bankruptcy Procedure:
When you decide to declare chapter 11 bankruptcy you must first file a petition with the courts. You will be responsible for giving the courts a complete list of your current assets, your current and expected income, and your current debt. At this time you will also propose a repayment plan for your debts.
In a chapter 11 bankruptcy case, your creditors do have the right to file their own suggested repayment plan. This is rarely done, but if you are considering chapter 11, it is important to know that your creditors do have that option.
Once your petition and repayment plan are approved you get to move forward. You begin making payments to your creditors on the schedule that you set forth in your repayment plan. Since chapter 11 bankruptcy is a legal proceeding, you do get an “automatic stay” between the time of filing and the time when you begin your repayments to those you owe.
An automatic stay means that your creditors must stop attempting to collect money from you, or repossess your property. As long as you honor the agreed upon repayment schedule, your business can continue to function, and all collection activities must cease.
Small Businesses Get A Bit of A Break:
Large corporations wishing to declare chapter 11 bankruptcy are overseen by what is known as their “Creditor’s Committee”. A creditor’s committee is usually comprised of the seven creditors that you own the most unsecured money to.
In the case of a small business, you may be able to skip the creditor’s committee entirely – it depends on how vocal your creditor’s are, and whether or not they seek to have legal representation of their own during your bankruptcy case.
For More Information:
If you are looking for more information on chapter 11 bankruptcy you can check out the website at USCourts.gov. They have a reasonably thorough explanation of the chapter 11 bankruptcy proceedings.
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