Chapter 11 Bankruptcy
Chapter 11 permits any “person” eligible for relief under Chapter 7 to be eligible for relief under Chapter 11. Thus, individuals who cannot qualify for Chapter 7 and Chapter 13 due to the Code’s debt or income limitations can file under Chapter 11 to reorganize their debt in 3 to 5 years. Chapter 11 bankruptcy is intended primarily for the reorganization of businesses with heavy debt burdens, most often associated with corporations but available to small businesses as well. Chapter 11 allows the debtor to propose a plan for profitability post-bankruptcy, which may include cutting costs and seeking new sources of revenue or income, while keeping creditors from harming you.
Even though a debtor may sell assets, the primary goal of Chapter 11 is to reorganize the debtor’s debt through a reduction in debt and payment plan while allowing the debtor to continue in its pre-bankruptcy financial and business activities. The debtor continues to operate the business or occupation.
The major aspect of a Chapter 11 case is the plan of reorganization. A plan of reorganization must follow the requirements in Section 1121 of the Code, including a designation of classes of creditors’ claims. Among other requirements, the plan must specify whether any classes are “impaired” which means that the creditor will receive less than the amount of its claim or interest, and how claims or interests will be treated. Creditors and interest holders must be allowed to vote on a plan of reorganization before it is confirmed by the bankruptcy court. After creditor’s vote, the court determines whether to confirm the plan. Once confirmed, the debtor generally emerges from bankruptcy with all its property, unless the plan provides otherwise. The finality of the confirmation order provides the debtor WITH A FRESH START.
While Chapter 11 has certain advantages for those that qualify, including more time to file a plan and the opportunity to reorganize, it is more time-consuming and costly than other forms of bankruptcy. Frazee Law Group is usually paid during the Chapter 11 process and, therefore, can proceed with a down payment. However, the least amount a debtor can expect to pay an attorney in a Chapter 11 is $20,000 to $40,000. Clients have spent the $40,000. With the cramdown described above and debt reduction, they have been thousands of dollars ahead when the process is completed.