Is Chapter 11 The Right Choice For You?

When it comes to filing business bankruptcy, the first thing you have to determine is whether chapter 11 is the right choice to bring the finances of your business entity back on track. Depending upon the severity of the debt situation, this form of bankruptcy may or may not prove to be a silver bullet for your dying business. Just restructuring the debts may or may not be sufficient enough to deal with the problem. Your company must be in a position to generate future profits. If not, it will be very difficult for you to payoff your creditors even if the repayment terms are made a little easier.

Hiring A Lawyer

The next important thing is to decide whether you want to handle the procedure yourself or prefer to get help from a qualified lawyer who specializes in handling bankruptcy cases. Considering the very fact that the business bankruptcy laws are very complex, it is often advisable to hire an attorney to help you with the procedure. A good legal expert will also be able to help you decide if filing such a petition is the right choice.

Reorganizing The Debts

The laws provide you an option to make a restructured repayment proposal on your own. The court will review the same and then ask the creditors if they accept your proposal. The creditors have the legal right to accept or reject your proposal. In most cases, if the plan you are proposing is based on reasonable grounds, the creditors accept the same but after making some small changes. If you are unable to reach a mutual agreement with the creditors, the court may reorganize the debt, which must be followed by you and the creditors. You will need to submit relevant documents to the court as well as to your creditors while a new repayment plan is in the process. The documents may include future forecasts of profits, records of outstanding credit, balance sheets, and others. As per business bankruptcy laws, you must submit your proposal within 4 months from the date of filing your petition. If you miss this deadline, your creditors will be asked to submit their own plan. A trustee is appointed by the court to monitor the process.

It is very important to note that if you continue making defaults with the repayment, the court may convert your chapter 11 bankruptcy into chapter 7. Business bankruptcy under chapter 7 requires complete liquidation of your business assets and properties; you will not be able to continue with your business operations.

The 6-Month Waiting Period

As per the laws, when you file for chapter 11 bankruptcy, you have to deal with a 6-month waiting period. The court proceedings do not start straightaway. You must show up on all hearings during this period and must comply with the debt repayment schedule. If you fail to do so, your petition will be rejected.

Gather Your Documents

Once you pass the 6-month test, you can go ahead and get your paperwork together. There is an array of documents that you need to attach with your petition, such as the report issued by a credit counselor, a detailed list of income and expenditures and assets and liabilities (with supporting documents).

Get Prepared; You Are Going To Talk To Your Creditors

Once your petition for chapter 11 bankruptcy is accepted, you will be asked to meet your creditors within 30 days and file reports explaining your financial situation in complete detail. The laws provide you four months of time to suggest a repayment plan. Your creditors on the other hand have the right to accept or reject your plan. If they reject your plan, they will be asked to file their own plans, but only after the first four months.

Dealing With The IRS

While you are dealing with your creditors, you must also get prepared to deal with the IRS. Paying back your taxes is a crucial part of the repayment plan that is proposed to you. There are long sections in Bankruptcy code that explain the different provisions applicable in this regard.

Get Prepared To Share The Control Of Your Business

It is also important to note that when you file under this chapter, you actually shift the control of your business to many outsiders that include your creditors, your credit counselors, and the court. Though you still own your business but all these parties will have a say in how you have to run your business, and you will have no other option but to listen to them.

Overall, your awareness about your legal rights and the fact that how prepared you are play a crucial role in this process and determine how smooth or difficult your journey to chapter 11 bankruptcy is going to be.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is another form of personal bankruptcy and can be a great solution for those who have a regular source of income and still have hopes to get their finances managed for which all they need is some debt-free time. It is a heavy burden of debts that is stopping them from actively participating into their business activities and put the same on the path of profit. In usual circumstances, especially in genuine cases, the bankruptcy court delivers its judgment in the favor of the debtor. The court asks the creditors to lower down their claims to reduce the burden of debt on the debtor while the debtor is asked to make a repayment plan to pay off the creditors’ reduced claims. The bankruptcy court also appoints a trustee to keep an eye on the business activities of the debtor. They help the debtor to get their financial matters re-organized. They will also see if the payments to the creditors are being made in timely manner as per the repayment plan approved by the bankruptcy court.

Chapter 7 Bankruptcy

The chapter 7 bankruptcy is a form of personal bankruptcy where people do not have any hope to reorganize their financial life. In this case, the bankruptcy court orders the trustee to liquidate all the assets owned by the debtor and the amount thus collected is used to pay off the creditors’ claim as per the priority status if any.

Once a debtor is granted personal bankruptcy, it will affect his or her credit life for the next 10 years at least.

Purpose Of Filing Bankruptcy

There are basically two main purposes to claim bankruptcy.

•If the debtor is declared as bankrupt by the bankruptcy court, they get the opportunity to rebuild their dilapidated financial life, as bankruptcy relieves them of most of the debts. A bankrupt individual or organization is not legally obliged to pay most of the debts he/she owes.
•If certain debts have been excluded from the bankruptcy discharge, the debtors are responsible to pay the debts on priority basis but only to the extent of the available means with them. The available means are the non-exempt assets submitted by the debtor to the bankruptcy court.

Types Of Bankruptcy

There are basically two types of bankruptcy – Liquidation Bankruptcy and Rehabilitation or Reorganization Bankruptcy. In liquidation bankruptcy, the assets of the debtors are seized and sold off to pay the debts they owe to their creditors. On the other hand, reorganization bankruptcy allows the debtors to carry on with their venture and pay the debts in monthly installments. Here, you must note that the debtor is not supposed to pay the entire amount. All they have to pay is the reduced claims made by the creditors. Depending upon your specific situation, you can choose the type of bankruptcy services for you. Your bankruptcy attorney will help you reach a wise decision in this regard.

Legally Imposed “Stay”: Protection Of The Debtor

When a bankruptcy petition is filed either by the debtor or the creditors in the bankruptcy court, the creditors cannot take any non-bankruptcy legal action against the debtor because of the legally imposed “Stay” during the time while the bankruptcy case is pending, awaiting judgment. The non-bankruptcy legal actions may include forcing the debtor to make payments of the debts they owe, pursuing lawsuits, garnishing wages etc.

Bankruptcy Fraud

Bankruptcy fraud is an attempt to manipulate with the financial facts by the debtors in an effort to save them from paying off the debts they owe. Such manipulation of facts may include concealment while declaring the available means and assets, destroying or concealing some relevant documents, false declarations in the United States Bankruptcy Court etc.

Bankruptcy Laws

As per the bankruptcy laws in the United States, six types of bankruptcy have been mentioned under six chapters.

•Chapter 7 Bankruptcy – Personal bankruptcy for both individuals and businesses
•Chapter 9 – municipal bankruptcy
•Chapter 11 Bankruptcy – rehabilitation or reorganization bankruptcy
•Chapter 12 Bankruptcy – reorganization bankruptcy for family farmers and fishermen
•Chapter 13 Bankruptcy – rehabilitation or reorganization bankruptcy for people who have a regular source of income. Sometimes also termed as Corporate bankruptcy
•Chapter 15 Bankruptcy – international bankruptcy cases

The Role Of Bankruptcy Lawyers

Because of the complexity involved in the bankruptcy laws, the importance of hiring a bankruptcy attorney to bring bankruptcy help for you cannot be ignored. The bankruptcy lawyers are the people who are well aware of all the ins and outs of the various bankruptcy situations and the various steps in filing bankruptcy. Again, new bankruptcy laws also get included from time to time, which is very difficult for a common man to be aware of. Only an efficient and experienced bankruptcy attorney can help you in this regard.

Types Of Bankruptcy Laws Taken From The Bankruptcy Code

As per the bankruptcy code, at present, there are four main types of bankruptcy laws. These bankruptcy laws are popularly known as chapters. The four main chapters in the bankruptcy code include chapter 7 bankruptcy, chapter 11 bankruptcy, chapter 12 bankruptcy an chapter 13 bankruptcy.

How Does The Bankruptcy Code Help Persons In Deep Debt Troubles

The various bankruptcy laws in the bankruptcy code have been designed in a way to protect people with bad financial position and deep debt troubles from unreasonable hassles that might be forced by the creditors. For example, when a debtor files for any type of bankruptcy, a bankruptcy stay is imposed by the bankruptcy court. This bankruptcy stay protects the debtor from the undue activities from the creditors. For example, the creditors cannot force the debtor to make the payment while the proceedings for the bankruptcy are running in the court. Any such activity from the creditors will be treated as illegal and the debtor can take action against them. However, the purpose of the bankruptcy code is not to protect only the debtors. The bankruptcy code has been carefully designed in order to stop debtors from doing any kind of bankruptcy fraud. New bankruptcy laws are added to the bankruptcy code from time to time in order to fill the loopholes that might be used by the debtors to perform some kind of bankruptcy frauds.

Is The Bankruptcy Code Same In All The States?

The bankruptcy code varies from state to state. Therefore, it is important for a debtor to make sure that the bankruptcy attorney they are hiring is completely aware of the specific bankruptcy code of the state. However, it does not mean that the states have the power to change the bankruptcy code. The basic bankruptcy rules are the same in all the states. What makes the real difference is the way the various bankruptcy laws are interpreted in every state.

If there is a change in the bankruptcy code, the change will come into effect in all the states.