Chapter 11
Reorganization is available to all businesses under U.S. Bankruptcy Code
Chapter 11 permits reorganization under the bankruptcy laws of the United States and is available to every business, whether organized as a corporation or sole proprietorship. Although it is most prominently used by corporate entities, it also is available to individuals. When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11.
A Chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a residence. Generally, a written disclosure statement and a plan of reorganization must be filed with the court. The disclosure statement is a document that must contain information regarding the debtor's plan including their—
- Assets
- Liabilities
- Business Affairs
- Classification of Claims
- Intentions of How Each Class of Claims is Treated
The information provided must be adequate enough to allow a creditor to make an informed judgment about the debtor's plan of reorganization. When the bankruptcy petition is filed, it automatically provides a stay of creditor actions. This automatic stay provides a period of time when all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation.
Creditors' committees—their role in Chapter 11 bankruptcy cases
Creditors' committees play a major role in Chapter 11 cases. This committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor. The creditor's committee can be an important safeguard to the proper management of the business by the debtor in possession and performs the following functions:
- Consults with the debtor on administration of the case
- Investigates the debtor's conduct and operation of the business
- Participates in formulating a plan
Difficult decisions can lead to positive outcomes
Declaring bankruptcy is difficult decision to make and the details can seem overwhelming. Let our experienced attorneys streamline and simplify the process. Call Ammeen & Associates, P.C. at 317-423-7505 for a consultation to discuss your situation and set a plan that is right for you or contact us online.
