Chapter 11 Bankruptcy Attorney in Jacksonville, FL
Bankruptcy Tips – Business Reorganization
Filing Chapter 11 Bankruptcy permits a business (whether a corporation or sole proprietorship) and some individuals, to restructure and repay debt under a plan for reorganization. Control of routine business operations remain with the filer, but the business itself is under the jurisdiction of the Federal Bankruptcy Court.
Reasons To File Chapter 11 Bankruptcy
There are solid reasons for filing a Chapter 11 Bankruptcy. Each myriad as the scope and range of business in the United States. When properly completed in a timely manner, a Chapter 11 Bankruptcy can be one of the most beneficial, and sometimes, the only way to save an otherwise doomed business.
- Chapter 11 can be used to prevent the foreclosure of the business's real estate long enough to either sell or develop the property. This chapter can also provide the time and protection from creditors that a business needs to trim expenses and improve profitability, or to reduce the company's overall monthly operating expenses to a realistic amount that they can afford to pay.
- A common use of Chapter 11 is to obtain an expanded time period within which the business can pay back all or part of their outstanding obligations, including the ability to stretch tax repayments to the IRS, EDD, etc. for up to 5 years. In general, tax creditors do not get to vote, but must abide with the plan as long as they are to be repaid within 5 years. If the appropriate agency consents, the repayment period can be stretched even longer.
- A Chapter 11 provides for a reorganization of financial affairs, monthly payments, and many times, to the principal balance of debts, without requiring the business to borrow additional money. It allows a business to stop foreclosures, repossessions, tax levies, IRS seizures, and other creditor actions, by allowing the company to set up a court-enforced repayment plan. Immediately upon filing, the court will order an automatic stay against all creditors to allow management time to concentrate on operating the business and restoring profitability and cash flow.
What Happens When You File?
Upon filing the petition for Chapter 11, you immediately stop paying all unsecured debt, including taxes. You will (or may) continue to make payments for secured obligations, depending on your situation and ultimate plan for reorganization. You can pick and choose which secured creditors to pay, and you may elect to surrender unprofitable secured property and/or leases.
- Many debtors with multiple locations will utilize Chapter 11 Bankruptcy to close unprofitable locations, without having to pay the full measure for breach of lease damages as normally allowed under state law. The damages allowed for breach of leases are limited by a Chapter 11 proceeding.
- The moratorium on paying unsecured debt will continue until your creditors have voted on a plan and the plan has been confirmed by the Court. Typically, this takes a minimum of 6 months or more, and commonly takes a year or more before you have to commence making payments pursuant to the court-approved plan. In some cases, it may take even longer. During this time, you continue to operate your business but with minimal restrictions as imposed by the Court.
- Some debtors file for protection under Chapter 11 to get out of Union Contracts that are severely limiting their ability to operate profitably under current business conditions. There are very specific guidelines on when a company is allowed to terminate union contracts, but it is possible to terminate the union contracts if the business is being financially crippled.
- To prevent professional persons (and insiders) from taking advantage of the bankruptcy stay, advance court approval is necessary to hire attorneys, CPAs and other professionals. However, provided there are no conflicts of interest, the approval process is generally a routine rubber-stamp administrative step. Some judges take the duty of approving the Chapter 11 debtor's general counsel very seriously, and will not approve an attorney who has not demonstrated the requisite experience in representing Chapter 11 cases. Other judges will approve anyone (as long as there are no apparent conflicts) based on the theory that who you pick as your company's attorney is your problem.
- There are a few, relatively minor reporting requirements that require monthly reports to be filed with the United States Trustees Office. In addition, the U.S. Trustees Office has a 7-day initial filing that requires you to provide certain documentation. The initial requirements may be bit inconvenient but, when set up correctly, the overall requirements are not burdensome. However, the penalty for failure to comply can result in your case being dismissed, or converted to a chapter 7 bankruptcy.
These are all good examples as to why you need a good attorney who has experience in representing cases in the Court that will actually hear your case. Once your plan is approved, you can continue normal business operations without having to obtain Court approval. However, anytime you intend on taking actions outside your normal scope of business, it is a good idea to have an experienced lawyer seek Court approval in advance.
Complexities of Chapter 11
The procedures for a Chapter 11 bankruptcy are complex and the process is full of booby traps. That is why it is important to choose a lawyer with substantial experience in representing Chapter 11 cases. If not, you may soon learn a very painful and unmerciful lesson as to why so many Chapter 11 bankruptcy cases fail.
- Imagine you operate a regional airline with a long-term lease and several long-term extension options. You obtained the lease before anyone anticipated a major expansion of the airport. In other words, the lease you have is a multi-million dollar asset. But, your controller was embezzling money, or a member of your management was incompetent, or your payroll department was not paying taxes, or an unanticipated problem created a severe cash flow problem, or your assets were seized by the IRS. Whatever the scenario, you can file a Chapter 11 to keep the creditors (including the IRS) off your back so you can concentrate on business operations to restore the company's cash flow and restore its financial health.
- By filing a Chapter 11 Bankruptcy, you can keep that valuable lease provided you comply with all of the Chapter 11 procedural requirements. But, you have chosen to a law firm you have used in the past for general business services and because they do not specialize in Chapter 11 cases, they call your lessor and assure the lessor that there will be no disruption in the payment of lease payments, and that the bankruptcy was filed to deal with other creditors, and not the lease. Then, 60+ days after you filed the petition, the lessor's attorney (who is a Chapter 11 bankruptcy lawyer) calls and informs you that you are to immediately surrender the premises as all rights provided by the lease were forfeited. Now, your case for reorganization is over, and your company is out of business.
- By operation of law pursuant to the Bankruptcy Code, non-residential leases on real property are irrevocably deemed rejected without notification on the 61st day after a bankruptcy filing. Unless the lease has been formally assumed by the debtor, or a motion to extend the timeline to assume has been filed before the end of the 60 days, there are no appeals and no reconsiderations. No matter how much the judge may want to help or how devastating the results, the Court is powerless. The Chapter 11 area of the law is a minefield for the inexperienced, so choose your bankruptcy lawyers very carefully.
In general, a successful Chapter 11 involves the selling of your plan to creditors who ultimately will vote on whether to accept your reorganization of debt. If more than half your creditors (in numbers) and two-thirds (in dollar amounts) vote for the plan, the remaining creditors (in that class) are bound whether they like it or not. In fact, composition plans, where less than the full amount is repaid, are common in Chapter 11 bankruptcy cases.
Chapter 11 Mistakes
One of the major reasons that so many Chapter 11 cases fail and the biggest mistake most debtors make is "THE DEBTOR WAITS TOO LONG TO GET COMPETENT ADVICE." Then, they have to spend valuable cash flow trying to catch up. In trying to satisfy creditors in hopes of avoiding bankruptcy, they are finally forced to file and their cash position is so deteriorated that they don't have sufficient cash to operate their business. So, even with a moratorium for payment of debts and the courts protection from creditors, the business ultimately fails.
At the Law Offices of Keith D. Collier, we offer a FREE consultation (up to one hour) with an experienced bankruptcy, foreclosure and debt resolution attorney who will fully review and analyze your specific financial situation. We advise you of all available options, the likelihood of case success and the costs and procedures involved with each alternative. Call today or use our convenient contact form for a prompt response.