As part of the Bankruptcy Code, Chapter 11 is usually thought of as a bankruptcy option for large businesses and major corporations. Certainly, most of us most commonly hear the phrase “Chapter 11” in news broadcasts referring to tremendous companies. The reality is, however, that most Chapter 11 bankruptcies are filed by unknown businesses of varying sizes. Typically, Chapter 11 cases are filed by corporations, partnerships, and limited liability companies. Individuals can also file under Chapter 11 if they have too much debt or income to qualify under Chapter 7 or 13. As an individual debtor, you can reorganize any debts incurred in your name as a means of restructuring your finances and protecting your assets. If you file as a business, your restructuring capabilities are limited to your business debts.
If you are considering business or individual bankruptcy in Georgia, you should come to The Dolhancyk Law Firm, P.C. for a free initial consultation. We will be happy to help you decide how to best deal with your debt problems and to assist you in following through with any necessary proceedings.
What Is Chapter 11 Bankruptcy?
Part of the United States Bankruptcy Code, Chapter 11 allows a debtor, whether a business or an individual, to restructure finances and accumulated debt. This restructuring takes place through a reorganization plan approved by the bankruptcy court. The plan is created to reduce obligations and modify repayment terms in order to help a debtor restabilize finances, regain a profitable footing, and continue operations while this occurs. Under Chapter 11, a business can sell off some assets and downsize in order to become fluid again by paying down some of its creditors.
Though most large companies would prefer to file Chapter 13, partly because it is less expensive to do so, this is not always possible. If a company wants to restructure its finances but has accumulated too much debt to meet Chapter 13’s eligibility requirements, Chapter 11 may be an extremely helpful safety net. If Chapter 13 is not a feasible option because the business debt is too large or because the business owns several mortgaged properties, filing for a Chapter 11 bankruptcy is recommended.
Reasons for Filing Chapter 11
- There are a number of reasons for filing Chapter 11, including that the filing can:
- Stop pending collection actions
- Stop lawsuits
- Stop or delay foreclosures
- Reduce the total amount of debt that must be repaid
- Repay debts over time
In the process of assisting the debtor in these ways, however, filing Chapter 11 involves the sale or surrender of any unnecessary assets. It is helpful to know that the Georgia Bankruptcy Code provides the same protections to individuals overwhelmed by debt as it does to large corporations.
While small businesses often reject the option of filing for Chapter 11 bankruptcy because of its expense, complexity, and risk, it is the only type of bankruptcy that allows a small business owned by a partnership, limited liability company, or corporation to restructure and continue to operate.
Chapter 11 is also the only bankruptcy option for individual business debtors who want to reorganize but owe too much money to meet Chapter 13’s eligibility requirements.
Reviewing Your Options with a Highly Competent Attorney
Because the rules governing bankruptcy are quite complicated, it is essential to have a knowledgeable bankruptcy attorney at your side to guide you through the process. Such an attorney in Georgia would be Alex Dolhancyk and his welcoming, detail-oriented staff. When you come to their office for a free consultation, they will begin to apprise you of the negatives, as well as the positives, aspects of filing for Chapter 11 bankruptcy. You will be asked to consider the following before making a final decision about whether Chapter 11 bankruptcy is a viable alternative for you personally or as the owner of a business:
- Reorganization can be expensive and time-consuming
- Whether the business is primarily dependent on your individual skill and proficiency
(If it is, you may be wise to liquidate your assets and subsequently start a new business
The Process of Going Through Chapter 11 Bankruptcy in Georgia
There are several steps to be taken in order to complete the Chapter 11 Bankruptcy procedure in Georgia, including filing a plan agreed upon by you and your attorney and having that plan approved by your creditors. The plan you create must tackle all of the following issues:
- Classify all creditor claims
- Define how each class will be addressed under the plan
- Obtain approval of the plan by all creditors, especially those involving contractual changes
- Find out whether a U.S. Trustee will be appointed to oversee restructured operations
- Find out whether your case warrants a creditors committee to oversee the plan
In the majority of Chapter 11 cases for small businesses, no trustee is appointed. Rather, the debtor continues to operate the business as the “debtor in possession.” With Chapter 11 bankruptcy cases, the court only appoints a trustee if it finds the debtor to be dishonest or incompetent to manage necessary business affairs. Nonetheless, although the debtor retains his/her position in managing day-to-day business, he/she loses control over major decisions. These decisions are made by the bankruptcy court which has the final say in:
- Any sale of assets
- Entering into or breaking a lease
- Mortgage commitment
- Any borrowing, licensing, expanding, or shutting down of business operations
- Any retention of, or payment to, attorneys or other professional advisors
The Role of Creditors in a Chapter 11 Bankruptcy
Parties of interest, including creditors and shareholders, have a say in all actions that require bankruptcy court approval. The bankruptcy court will consider input when deciding how to proceed.
Depending on the size of the company and/or the complexity of your particular case, the process may take from a few months to a few years. In some relatively rare cases, it is not the debtor who files for bankruptcy, but a bunch of frustrated creditors who band together to file an involuntary Chapter 11 petition against the debtor who is in default.
The Timing of Chapter 11 Reorganization Plans
Typically, the debtor has 4 months to work with his/her lawyer after filing Chapter 11 to come up with a proposed reorganization plan. The court can, if there is a show of good cause, extend that period for up to 18 months. The period can also be shortened at the court’s discretion. Sometimes the creditors or other interested parties, if they are dissatisfied with the debtor’s process, may try to have the Chapter 11 case converted to a Chapter 7. According to research, only about 10 to 15 percent of Chapter 11 cases actually result in successful reorganizations.
Basically, a Chapter 11 bankruptcy plan is a contract between the debtor and the creditors, spelling out how the business will continue to operate and how it plans to meet its financial obligations in the future. In most cases, Chapter 11 bankruptcy plans involve some downsizing of the business in question to reduce expenses and liquidate some assets. If you are considering filing for Chapter 11 bankruptcy in Georgia, you should come into the friendly office of The Dolhancyk Law Firm, P.C. where you can comfortably discuss your situation with a highly experienced, trustworthy bankruptcy attorney. You can reach us by telephone or by filling out the contact form on our website.
The Dolhancyk Law Firm serves clients throughout Peachtree City, Newnan, Fayetteville, Fayette County, Coweta County, and Spalding County.