Chapter 11 bankruptcy is used by businesses and highly leveraged individuals. Chapter 11 functions much like a chapter 13, but on a larger scale. Chapter 11 is highly technical and fact specific. This article is an overview you with an overview, but if you want specific information about chapter 11, you should contact Seattle bankruptcy attorney, David Fuller, for more information.
Business Chapter 11
Chapter 11 is most frequently used by corporations that will continue to operate after bankruptcy or businesses that will wind down and ultimately dissolve. Even if the business plans to dissolve, chapter 11 is a better option than chapter 7, because you can remain in control of the business throughout the chapter 11 process. In a chapter 7, a trustee takes the business over. If the business is reorganizing the business, then you also remain in control.
If you have a strong business model and access to a healthy revenue stream, your business can be reorganized. Oftentimes a healthy business will expand too rapidly. The debt load will increase faster than the revenue stream. This can ultimately lead the business to insolvency, even though it has a strong underlying revenue stream.
When there is a revenue stream, a business can use chapter 11 bankruptcy to reorganize and even eliminate the debts that pushed the business into insolvency. Debts can be eliminated through a procedure known as debt classification and cramdown. Cramdown allows you to continue to pay necessary creditors, while eliminating the creditors that are causing your financial distress.
Many businesses have secured creditors. A secured creditor is a creditor that has the right to repossess business property, if the debt is unpaid. Many businesses have liens on their most important equipment. In order to reorganize, it is often necessary to modify the secured so that the business can continue to operate. A secured debt can be modified by stripping the debt down to its present value and then amortizing it over a period of years. In this way, the business can keep its property and satisfy the secured debt on better terms.
A chapter 11 bankruptcy reorganization plan is put into effect through the plan confirmation process. During that process you have the right to propose your own plan during the exclusivity period. The length of the exclusivity period depends on the kind of business. If a business cannot confirm a plan during that period, then creditors can propose plans of their own. This is why it is important to choose a lawyer who understands the confirmation process and can confirm a plan for your business, before the creditors begin to propose plans of their own. Creditors may vote on the plan – although it is usually possible to predict voting patterns and get the votes necessary – and through a confirmation hearing. A confirmation hearing can take anywhere from an hour to a few days, depending on the complexity of the business debts.
If your business is struggling, contact the Law Office of David H. Fuller for a reorganization consultation.
Individual Chapter 11
Highly leveraged individuals often cannot file a chapter 13, because they have too much debt. In that case, they are required to file a chapter 11. Real estate investors and developers, as well as sole proprietors, often have to file an individual chapter 11, because they carry so much debt. Because these highly leveraged individuals are usually self-employed or are high level employees, they often have very specialized needs going into a bankruptcy. This is particularly true in the Seattle area, because of the business climate here. A chapter 11 helps these individuals maintain control of their financial lives and their careers.
The decision to file bankruptcy is never easy. If you are in a position where you have a high net worth, are self employed, or work as a high level employee, your bankruptcy will require special attention. The Law Office of David H. Fuller is experienced in working with clients whose bankruptcies need special handling. The chapter 11 process can be tailored to address your concerns, to maintain your assets, and to provide for your ongoing financial health.
From the client’s perspective, the chapter 11 functions much like a chapter 13. The chapter 11 allows you to reorganize your debts and to maintain control of your property. Your special concerns will be addressed through the plan drafting and confirmation process.
Generally speaking, you are required to make certain minimum payments to your creditors in order to get the discharge and to keep property that is secured by a lien. The payment is calculated by deducting your expenses from your gross income, these expenses include taxes, food, shelter, clothing, medical costs, and payments on secured debts.
These payments can be adjusted to address preservation of high value assets and business assets. Further the chapter 11 plan will allow you to operate a business as a going concern and to adjust your current debt structure.
Contact the Law Office of David H. Fuller, a Seattle bankruptcy attorney, for your free consultation.
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I am a bankruptcy attorney with offices in Seattle and Kent. I help people from all over the Puget Sound region file bankruptcy. My practice services bankruptcy clients from Seattle, Kent, Renton, Bellevue, Tacoma, Burien, Des Moines, Auburn, Federal Way, the Eastside, and Pierce County.
