When
a business entity is not able to pay off its debts, they eventually restructure
their business funds by approaching the bankruptcy court and filing the Chapter
11 petition.
Chapter
11 is a section of Bankruptcy Code that provides a debtor, usually a business
entity or partnership form of enterprise, to reorganize its business
operations, assets, and debts. A debtor filing the Chapter 11 proposes a
reorganization plan so as to continue its business operations and pay off the
outstanding debts to its creditors from time-to-time. Entrepreneurs and
individuals can also file for Chapter 11 to declare bankruptcy.
The
beginning of a Chapter 11 case is marked by the petition filing, the Section
341 meeting, and the Schedules and Statement of Financial Affairs. The cases of
Chapter 11 are lengthy process that entails a series of hearings that require
the testification of principals.
Apart
from being lengthy process, Chapter 11 cases are exorbitant in which the fees
of bankruptcy lawyers remain nearly 4% of yearly revenue of the organization.
If your business organization reports annual revenue of $1,000,000, fees of
attorneys will be around $40,000-$50,000 excluding the expenses for accountants,
consultants, and other professionals.
Immediately
after the Chapter 11 filing by the organization, it is known as
debtor-in-possession. The organization is still handled by the management.
Until and unless a motion is filed by someone, the appointment of a trustee is
not carried out. After the filing of a motion, the court can give its order for
the appointment of a Chapter 11 trustee.
The
final stage of a Chapter 11 case is the approval of the court of the latest
business plan, which is known as the plan of reorganization, furnished by the
filing organization. In the next step two key concerns are addressed – the
future operation strategy of the organization and they method and time of
payment of the outstanding debts to the present debtors.
Chapter
11 has a key concept of “automatic stay” decisions which pertain to the plan
process and contracts of the organization.
The
automatic stay decisions halt all current litigation against the filing
organization and all endeavors carried out to collect the debts that existed on
the date of filing. The stay appears automatically and the filing organization
is not needed to inform its creditors about the bankruptcy filing. It is,
however, advisable for business owners to inform their creditors about the bankruptcy
filing.