Chapter 11 Bankruptcy

Chapter 11 of the United States' Bankruptcy Code permits reorganization and restructuring of debt and is used primarily by businesses, including corporations, partnerships and sole proprietorships. Chapter 11 can also be used by individuals.

In many cases it can be a viable alternative to Chapter 7 which is chosen when a business does not have any possibility of paying its debts. In Chapter 7, the business ceases operations, a trustee sells all of its assets and distributes the proceeds to its creditors. Any money left over after debts are paid is returned to the owners of the company.

In Chapter 11, the debtor remains in control as a debtor in possession, subject to the oversight and jurisdiction of the court

In simpler terms, Chapter 11 allows you to devise a plan to make your business profitable again, keep your assets and keep your business open while you follow the plan. It makes more sense for everyone involved if a business reorganizes and remains viable rather than liquidating its assets and closing its doors forever. Your workers stay employed, vendors continue to sell goods and services and federal, state and local governments continue to benefit from the taxes and fees you pay.

Augusta attorney Louis Saul has a degree in business and economics as well as a law degree and he is uniquely qualified to assess your situation and help you devise a realistic plan to get your business out of the red and into the black.

The Reorganization Process

When you file for Chapter 11, your business becomes a debtor in possession and its property becomes property of the bankruptcy estate. Although you are subject to the decisions of the court,  you will have a lot of control over how your business will run during and after the reorganization

Once your file, any collection activities pending against the business are stopped. This automatic stay gives you and your creditors breathing room ... time to negotiate a repayment plan so you can pay off your debts at a manageable place.

Chapter 11 prevents your creditors from calling in loans all at once and allows you to use, sell or lease the business's property, look for new sources of funds and continue to operate your business. During this time you have a legal obligation to protect your creditors' rights in the business and its property. You can't give the property away or sell it for ridiculously low prices, for instance.

If your business is a corporation, your stockholders and the bankruptcy court must agree to and approve your repayment plan. Creditors and stockholders may object to your plan, but the court generally approves most reasonable plans. The court also has the power to oversee some of your business decisions. You're still in control of daily operations, but anything involving a great deal of money needs the consent of your bankruptcy trustee and the court.

If you think your business would benefit from the ability to pay off creditors while still earning income, you might want to choose Chapter 11. But keep in mind, the Chapter 11 business bankruptcy law is complicated.

Chapter 11 Individual Bankruptcies

The process of filing a Chapter 11 and obtaining confirmation of the debtor's Chapter 11 Plan can be quite complex and costly. Most Chapter 11 bankruptcy cases are filed by business entities. However, individuals are not precluded from seeking Chapter 11 relief, and in appropriate cases – usually involving individuals with large liabilities or engaged in complex business dealings – Chapter 11 bankruptcy may be a good solution.

A typical individual Chapter 11 client generally falls into one of four categories:

  • An individual who has a lot of complex, usually business-related debt but also a lot of assets and/or high income, which can be used to fund or otherwise support a Chapter 11 Plan.
  • An individual who does not fall within certain parameters required for Chapter 7 or Chapter 13 bankruptcy.
  • An individual with a business that could be disrupted by a Chapter 7 bankruptcy.
  • An individual who needs to reorganize debt but who also needs greater flexibility than allowed by Chapter 13.

Louis Saul can help guide you through the complications and get your business back on a sound financial footing.

Do You Have a Case?