Chapter 11 Bankruptcy

By Mark J. Markus, Attorney at Law

Chapter 11 bankruptcy is known as a “reorganization” where an individual or business proposes a repayment plan to the creditors who are owed money before the case is filed. It is designed primarily for businesses, but individuals who do not qualify to file either Chapter 7 or Chapter 13 can also benefit from filing a Chapter 11 (for example, if your income is too high for a Chapter 7 and you have more debts than are allowed for a Chapter 13).

Chapter 11 is too broad and complicated to fully explain in a short article like this, but a short summary will give you some idea of how it could help reorganize your personal or business debt obligations and resolve your financial problems. A qualified bankruptcy attorney experienced in Chapter 11 personal and business reorganizations can give you more details specific to your circumstances.

Under the new bankruptcy laws which went into effect in October, 2005, Chapter 11 has become more difficult with increased time pressures for getting your plan approved, and other burdensome provisions. But, it is still a very powerful tool to get you past your personal or business’ financial debt problems.

For a corporation or partnership, if you need bankruptcy in order to keep your business operating, then Chapter 11 is your only option.

In a Chapter 11 case, you (or the corporation or partnership) remain in control of the assets and day-to-day operations of the business unless and until the court appoints a Trustee to do so. This is very different than other chapters where a trustee is appointment automatically when your case is filed.

Chapter 11 allows you to do many things, including getting rid of burdensome leases and contracts, objecting to claims of your creditors, and proposing a plan of repayment to your creditors.

The Plan is the key to any Chapter 11 case. Your creditors have an opportunity to vote for or against whatever Plan is proposed in a Chapter 11 case. This is very different than Chapter 13 or other bankruptcy chapters. The voting process and how many votes are needed is very complicated and beyond the scope of this article. Many times, a single creditor can, by virtue of its size, control the voting in that class of claims, which can make confirmation of the plan at less than 100% very difficult. Structuring a feasible and confirmable plan is the goal of any successful case.

For individual debtors, particularly those with real estate holdings where the total secured debt against them is more than $900,000, Chapter 11 can be very helpful in giving some breathing room (time) to sell or refinance your property. It is necessary to have other unsecured debts that also need to be paid, but the real-estate driven Chapter 11 case is very common and is somewhat easier to succeed in than a standard operating business case.

Chapter 11 is complicated, and very time consuming and expensive compared to the other Chapters, but if you think it might benefit you or your company, then you should consult with a qualified bankruptcy lawyer as early as possible. As with any bankruptcy matter, the sooner you get professional advice, the better your chances are of succeeding if and when you decide to file.

About the Author:

Mark J. Markus is a Los Angeles Bankruptcy Lawyer serving bankruptcy clients in Southern California

Phone: (818) 509-1173

Website: www.bklaw.com

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