All debt and taxes are immediately stopped once your petition for a Chapter 11 is filed. You will possibly still make payments for safe obligations, this depends on each businesses circumstances in regards to their new organization plan. You are able to select who to pay and if you would like to surrender unprofitable assets or leases.
- Most businesses in debt with several locations will use Chapter 11 bankruptcy to close their locations that are no longer or never were profitable. The reasoning for this is it stops them from having to pay the full amount for a breach of contract damages they would normally be required to pay under state law. Chapter 11 limits the damages allowed for a breach of lease.
- You will have to continue paying on your debt until the creditors have decided on a plan and that plan is approved by the Court. This can take a 6 month minimum and more, but more commonly takes one plus years before you are required to make payments in regards to the court-approved plan. There are certain cases where it can take longer. Your business continues to operate normally during this time with minutely imposed Court restrictions.
- Another reason people in debt will file for Chapter 11 is escape a Union Contract that is greatly limited them to operate for a profit under the current conditions of the business. There are extremely specific rules for terminating these contracts, but it is possible if the business is severely unprofitable.
- To keep a stronghold on people in business from taking advantage of bankruptcy, they must have court approval before hiring a lawyer, CPA or any other professional in regards to their bankruptcy. The process, for the most part, is routine though as long as there isn’t a conflict of interest. Depending on the judge you get, your Chapter 11 could be taken very seriously or very loosely.
- Reporting requirements for the United States Trustees Office are very few and minor. There is a 7 day pre-filing that requires you to obtain and show certain documents. This can be somewhat of an inconvenience, but when done right, does not create a burden. Despite the ease of the above, there is a penalty for compliance failure and can result in a dismissal of your case.
All of these are great examples to why your need an experienced lawyer to represent you, so the Court will hear your case. After plan approval, your business can continue normal operations with no need for Court approval. If you do plan on taking actions outside normal business operations, you should have an experienced attorney seek the approval of the Court before proceeding.
Complexities of Chapter 11
Chapter 11 bankruptcy procedures are extremely intricate and full of places to mess up. This is the reason you need a Chapter 11 experienced attorney. Without this lawyer, you could learn the hard way why there is a high failure rate for Chapter 11 bankruptcy cases.
- Imagine you operate a national bus company with a long-term lease and several long-term extension options. You obtained the lease before anyone anticipated a major expansion of the buss station. 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. In any scenario, you can file a Chapter 11 to keep the creditors (even the IRS) off your back so you can concentrate on business operations to restore the company's cash flow, profitability and restore its financial health.
- By filing a Chapter 11 Bankruptcy, you can keep that valuable lease provided you follow all of the Chapter 11 procedural requirements. But, you chose the law firm you usually use 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. This puts an end to your case for reorganization as well as an end to your 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 Bankruptcy Mistakes
When the debtor wait too long to get competent advice, this is the main reason that the majority of Chapter 11 cases fail. Once your wait too long, you have to spend more money trying to play catch up. They use too much money in hopes to satisfy the creditors and ultimately their cash flow is so low, they can’t operate their business any longer. So even though they have a plan of the payments of their debts, the business 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 lawyer who will fully analyze and review 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. Use our contact form or call today for a quick response.