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.
Reorganization with Chapter 11
The major aspect of a Chapter 11 case is the plan of reorganization. A plan of reorganization must follow the requirements in Section 1123 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 the 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 in Section 1141 . 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 Chapter 11 is $20,000 to $50,000. With the cramdown described above and debt reduction, they have been thousands of dollars ahead when the process is completed.
Small Business Reorganization Act Compared to a Regular Chapter 11.
Advantages to the SBRA compared to a regular Chapter 11.
The Small Business Reorganization Act (SBRA) gives small businesses a new option to consider when filing for Chapter 11 bankruptcy. The SBRA provides a cheaper alternative to a regular Chapter 11 bankruptcy. In a regular Chapter 11 bankruptcy, small businesses will usually have to deal with an unsecured creditors committee, will have to get a disclosure statement approved, will have to solicit votes from creditors and must abide by the absolute priority rule which generally requires unsecured creditors to be paid in full to confirm a plan over the objection of creditors. None of that is necessary under the SRBA in order to confirm a plan, saving small businesses time and money during the bankruptcy process.
Chapter 11 and SBRA Comparison
Differences between Chapter 11 and Chapter 11 under the Small Business Reorganization Act.COMPARE NOW
Prepared by Denali Purvis, Bankruptcy Paralegal and RoseAnn Frazee, Bankruptcy Attorney