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What To Know When Filing For Chapter 11 Bankruptcy | Whateven
What To Know When Filing For Chapter 11 Bankruptcy

By: @David_Neeble


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If you are looking to either liquidate or reorganize debt, the court will assign an Arizona Chapter 11 bankruptcy trustee to oversee your operations, to ensure that the best interest of the creditor is protected.

Bankruptcy is a legal process that’s designed to help businesses and individuals clear all or part of their debt. It may help debtors to get relief from the debt. However, declaring bankruptcy comes with its fair share of severe and long-term impact on credit because it remains on the debtor’s credit report for 7 to 20 years.

Understanding bankruptcy

Like other legal cases, bankruptcy can be a complicated process for an average mind. Unless you are excellent in matters business law, you may want to bring in a lawyer to help you navigate through the murky waters. Having an experienced lawyer by your side will not only ensure you get all the details right the first time, but it will also lift the heavy burden off your shoulders.

Additionally, you will need to meet specific requirements before filing for bankruptcy. You will have to prove you cannot pay back what you owe and also go through credit counseling with a qualified credit counselor. The government-approved counselor will assist you in analyzing your finances, looking into other options aside from bankruptcy, and even develop a personal budget plan.

Chapter 11 bankruptcy

Chapter 11 allows businesses and individuals to either liquidate or reorganize debt. Unlike Chapter 7 and 13 bankruptcy cases, it involves a larger amount of money with regards to debts and assets of the business or individual.

A Chapter 11 lawsuit starts with filing a petition with the federal bankruptcy court. This petition can be voluntary or involuntary. The former is where you file the petition, while the latter involves the creditors filing the petition. Once the petition is filed, the case commences. In this bankruptcy, you remain in possession of your asset and continue to operate the business under the supervision of an Arizona Chapter 11 bankruptcy trustee, who, as mentioned earlier, works for the benefit of creditors.

The creditors may not pursue new or existing collection activities for unpaid debts when an automatic stay of all collection action is in effect. But they can do so when there is a modification to the stay. This allows you to come up with a reorganization strategy and negotiate a better repayment condition void of worries about the debt obligations. In Chapter 11, the business continues to operate without disruptions, but under supervision.

Reorganization plan


Under normal circumstances, you will have 4 months after filing Chapter 11 to suggest a reorganization plan. If the plan is done in good faith, is reasonable, and complies with the law, the court will approve it. Following confirmation, all your debts (those that existed before approval date – but not addressed in the plan) are released. From this point onward, you’ll need to repay creditors according to the specified terms and run as per the agreements of the reorganization plan.

Confirmation of reorganization plan


Confirmation, or the approval of the proposed plan, rests with the federal bankruptcy court. To confirm the proposed plan, the court needs to establish that the plan:
Is feasible (or likely to succeed): in this case, you have to demonstrate to the court that the business will be able to generate enough revenue within the stipulated time to cover its expenses as well as repay the creditors.

  • Is in good faith: your proposed plan should comply with the applicable law
  • Is fair and equitable: you should be able to pay the value of secured creditors’ collateral
  • Is in the best interest of creditors: your plan needs to be in creditors’ best interest – meaning the creditors should get about the same amount as they would if your case was a Chapter 7 bankruptcy.

People often file Chapter 11 when they have too much income for Chapter 7 and too much debt for Chapter 13. Chapter 7 is the most preferred since it is somewhat cheaper than Chapter 11. However, when you need a flexible timeline, no debt limit, and to keep certain assets, Chapter 11 is your best option. It also prevents fees and penalties from accruing on certain types of unpaid taxes.

Succeeding in Chapter 11 bankruptcy

Since creditors are allowed to vote your proposed reorganization in or out, you will need to solicit votes – just like in an election. So, you must get all creditors on board with your treatment plan. If a creditor rejects your plan, you will have to negotiate to bring them in, but if it all fails, you’ll have no option but to request the judge to conform your case over the objection of the creditor.

Summary

Chapter 11, bankruptcy is meant to assist struggling individuals and businesses in restructuring their finances. As mentioned earlier, this is achieved through a court-monitored process where creditors and debtors partner in an agreed-upon reorganization plan. Chapter 11 attempts to make debt repayment more affordable, and at the same time, maximize the creditors’ return.

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