Chapter 11 Bankruptcy Lawyers, Roseville California
Chapter 11 bankruptcy was originally established and traditionally used for the purpose of reorganizing a business that had fallen on hard times, or was otherwise on an unsustainable course. Today, Chapter 11 bankruptcy is available to a variety of filers, including individuals, small businesses, and, most commonly, large companies such as national corporations.
If you are a California resident who is struggling to manage overwhelming debt, or if you own a California business that is on the verge of insolvency, Chapter 11 bankruptcy may afford you an invaluable opportunity to wipe the slate clean, enabling you to emerge from the bankruptcy in improved financial condition with a clear plan for the future. To discuss whether Chapter 11 could be right for you or your business in a free and confidential legal consultation, contact the skilled and experienced Roseville Chapter 11 attorneys of The Bankruptcy Group at (800) 920-5351 as soon as possible.
What is Chapter 11 Bankruptcy?
There are several different bankruptcy options available to qualifying individuals and businesses in California. Each type of bankruptcy is named for its chapter of the U.S. Bankruptcy Code. Most bankruptcies in California fall into one of three categories:
- Chapter 7 Bankruptcy (Liquidation, Straight Bankruptcy)
- Chapter 13 Bankruptcy (Wage Earner’s Plan, Reorganization Bankruptcy)
- Chapter 11 Bankruptcy (Reorganization Bankruptcy)
For any individual or business owner who wishes to declare bankruptcy in Roseville, determining the appropriate chapter to file under is one of the first and most important steps. So, how does Chapter 11 differ from other kinds of bankruptcy cases in California?
Chapter 11 Bankruptcy Definition
The United States Courts system supplies the following definition of Chapter 11 bankruptcy:
“The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership.”
This definition continues with a short parenthetical note:
“(A [C]hapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in [C]hapter 11.)”
The United States Bankruptcy Court for the Eastern District of California, which features a courthouse location in Sacramento, provides a similar definition:
“Chapter 11 is the reorganization chapter [of bankruptcy] available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts.”
For additional definitions related to Chapter 11 bankruptcy, you can:
- Speak with your attorney about terms you don’t understand. The California Chapter 11 attorneys of The Bankruptcy Group know that the legal terminology around bankruptcy can be overwhelming, and are always happy to help clarify and explain information for you. We want you to feel confident and empowered to make informed, clear decisions.
- Consult the legal glossary provided by the U.S. Courts on its website. Select “Bankruptcy” from the “Services & Forms” tab, click the “Bankruptcy Basics” link, then click the “Glossary” link.
- Consult 11 U.S. Code § 101, which supplies numerous definitions for commonly used terms in Chapter 11 bankruptcy.
Differences Between Chapter 7 and 11 Bankruptcy
Chapter 11 bankruptcy provides the filer with significant powers to reorganize and handle unsustainable debt burdens. However, it is not without some limitations and drawbacks. One drawback to the form is that it is significantly more complex and time-consuming than Chapter 7, which is the quickest and simplest type of bankruptcy.
However, for businesses other than sole proprietorships – including many small businesses and family-owned businesses – it is the only form of bankruptcy available if the party wishes to continue running the business. Absent a Chapter 11 bankruptcy petition, a Chapter 7 bankruptcy is the remaining option for business owners facing significant financial difficulty.
While Chapter 7 is far simpler, it will also result in liquidation of the business’ assets in order to repay creditors. By comparison, Chapter 11 allows the business or individual to retain its assets through strategic reorganization, which means that operations can continue. For some filers, it becomes necessary to convert a Chapter 11 case to Chapter 7.
Chapter 11 Bankruptcy vs. Chapter 13
Chapter 11 and Chapter 13 are more similar than Chapter 11 and Chapter 7. Though it is often associated with Chapter 13, they even share a nickname: “reorganization” bankruptcy. This is because, unlike Chapter 7, both Chapter 11 and Chapter 13 revolve around the establishment of a reorganization plan, which is essentially a long-term plan for paying off certain debts.
Similar to a Chapter 13 case, the plan must be approved by certain creditors, who are separated into different groups based on the nature of their claims. For example, “impaired” claims are claims which do not require full payment. If the plan is completed successfully, the case will be discharged, and you will no longer be liable for the discharged debts, as in a Chapter 13 bankruptcy.
In Chapter 13, the court appoints a trustee to handle payments, object to improper claims, and review the filer’s documentation for accuracy. In Chapter 11, the court may appoint a trustee if the court determines the debtor, known as the “debtor in possession,” has committed fraud, acted with incompetence, or otherwise severely mismanaged his or her financial affairs. The business can continue to operate during the bankruptcy, but the court must approve major business decisions such as the expansion of operations, entry into new contracts with unions or vendors, or the sale of assets.
Like Chapter 7 and Chapter 13, Chapter 11 bankruptcy includes a feature called the “automatic stay.” The automatic stay is an injunction, or court order, which generally freezes attempts to collect debts while the bankruptcy is in effect.
Types of Bankruptcy Chapter 11
Chapter 11 is typically associated with large companies which have many hundreds or thousands of employees. However, though less common, Chapter 11 can also be effectively utilized by small companies, generally defined by the Small Business Association (SBA) as companies with fewer than 500 employees. In addition, there are rare instances in which Chapter 11 is an appropriate debt solution for individuals, though such cases are unusual.
Personal Bankruptcy Chapter 11
To reiterate, only in rare cases is Chapter 11 the ideal form of bankruptcy for individual debtors. However, for a very small group of individuals, Chapter 11 is the most sensible and advantageous chapter to file under.
Chapter 11 is designed for individuals who have too much debt to file under Chapter 13, but also have too much income to file under Chapter 7. When you contact The Bankruptcy Group for your free initial consultation, our Chapter 11 attorneys in Roseville will help you understand which type of bankruptcy is right for you.
Business and Corporate Bankruptcy Chapter 11
Corporations and limited liability companies are prohibited from filing for bankruptcy under Chapter 13. The only types of business for which Chapter 13 is an option are sole proprietorships and certain types of partnerships. For other types of business entities, Chapter 11 is the only business bankruptcy option in California.
Chapter 11 Bankruptcy Reorganization
Chapter 11 allows struggling business to stay in operation through the establishment of a plan of reorganization. If you are unwilling to close or sell your business, Chapter 11 is the only feasible option. The debtor or filer is the only party which can propose a reorganization plan for the first 120 days after filing, after which point other parties can propose their own plans unless the debtor obtains an extension. The debtor must adhere to the plan of reorganization once it has been confirmed.
Pros and Cons of Bankruptcy Chapter 11
Chapter 11 bankruptcy affords the filer numerous benefits and opportunities, but also creates some considerations which the debtor should keep in mind. Some potential drawbacks of Chapter 11 are that:
- Chapter 11 cases can be long. It may take six months to a year to confirm your plan of reorganization.
- It is the most financially complex type of bankruptcy.
- It is seldom the appropriate form of bankruptcy for individual debtors.
Despite these pitfalls, for the right filer, Chapter 11 can be a tremendously powerful and positive financial strategy. Some benefits of Chapter 11 are that:
- It can save your company from financial collapse.
- You will retain control over managing your company while the bankruptcy is in effect.
- You will be protected from creditors by the automatic stay.
- Certain debts can be paid in part, reducing what you owe.
- If you qualify for neither Chapter 7 nor Chapter 13, Chapter 11 is a viable alternative.
Filing Bankruptcy Chapter 11
When a person says they are “filing for bankruptcy,” they are describing only one step of a long and intricate process. Chapter 11 bankruptcy involves many different stages and procedures, some of which are described below.
How to File Bankruptcy Chapter 11
Debtors should be forewarned that Chapter 11 is generally the most technical and intricate form of bankruptcy. While the following applies to all forms of bankruptcy, with Chapter 11 in particular, it is imperative that filers are represented by a skilled, qualified, and experienced attorney who understands the complex financial and legal considerations that arise in these nuanced cases.
A Chapter 11 bankruptcy can only begin with the filing of an appropriate and sufficient bankruptcy petition. The petition may be filed voluntarily by the business owner, or it may be filed involuntarily by creditors when certain conditions are met. Any voluntary Chapter 11 petition filed with a bankruptcy court must adhere to the formatting set forth by Form 1 of the Official Forms prescribed by the Judicial Conference of the United States.
For the filing to be legally sufficient, it must contain information including:
- Asset schedule
- Liability schedule
- Executory contracts and unexpired leases schedule
- Income and expenses schedule
- A financial affairs statement
Once a legally sufficient voluntary Chapter 11 petition is filed, the filing party becomes what is known as a “debtor in possession.” A debtor in possession is in a fairly unique position in bankruptcy law, because the debtor in possession retains ownership and authority over the assets of the company. The debtor in possession is responsible for running the business and overseeing its affairs and reorganization.
The debtor in possession status is retained until the bankruptcy case is dismissed, converted to another form of bankruptcy, or the reorganization plan is confirmed by the court. The debtor in possession acts similarly to a trustee and holds a fiduciary duty to the entity undergoing reorganization.
The debtor in possession is also subject to additional constraints. Chiefly, the debtor in possession is monitored by a U.S. trustee. This trustee is also responsible for organizing what is known as a “Section 341 meeting” or “341 hearing.” At the 341 meeting, the debtor in possession can be questioned by creditors, under penalty of perjury, regarding the handling of the reorganization.
When to File Bankruptcy Chapter 11
The timing of your Chapter 11 bankruptcy filing in California can have a significant impact upon the outcome of your case. Depending on your unique financial goals and resources, it may be advantageous for you to delay your filing by a period of weeks or months. When you contact The Bankruptcy Group for your free initial consultation, we can discuss how to strategically time your Chapter 11 case.
There is no single “best” or “worst” time to file for bankruptcy under Chapter 11 – or, for that matter, under any other chapter of the U.S. Bankruptcy Code. Each filer’s financial circumstances are unique, and must be evaluated on a case-by-case basis by an experienced bankruptcy attorney. For some debtors, it makes financial sense to file as soon as possible. For others, an intentional delay will produce more desirable effects.
However your case is timed, the filing of a Chapter 11 bankruptcy does not mean the end for your company. Rather, it is the start of a new beginning. Many reputable, major companies have used the Chapter 11 process to successfully emerge from bankruptcy, including General Motors, Eddie Bauer, Sbarro, and Delta Airlines. To schedule a free and confidential bankruptcy consultation with an experienced Roseville Chapter 11 lawyer from The Bankruptcy Group, call (800) 920-5351 today.