Chapter 11 bankruptcy is also known as reorganization. As the name suggests, this bankruptcy chapter involves the reorganization of the business. Businesses that are facing financial troubles but can operate viably if their debts are reduced or the repayments postponed can avail of protection under Chapter 11 of the Federal Bankruptcy Code.
Only businesses can file for protection under Chapter 11 of the Federal Bankruptcy Code. The business can be sole proprietorship, partnership, an LLC or a corporation. Chapter 11 bankruptcy also allows for the liquidation of the assets of the business to pay off the creditors. An experienced bankruptcy attorney can review the circumstances of the business and determine if it can file for protection under Chapter 11 of the Federal Bankruptcy Code.
When a business files for protection under Chapter 11 of the Federal Bankruptcy Code, an automatic stay will come into operation. This stay will prevent the creditors of the business from contacting the business or taking steps to recover their dues. A business can seek damages from any creditor who violates this stay provision. One major advantage of filing a Chapter 11 bankruptcy is that the debtor will continue to have control over the business. As such the business can still continue to operate normally.
In a Chapter 11 proceeding, a creditors committee is appointed by theUnited Statestrustee. This committee generally consists of the seven largest unsecured creditors of the business. This committee will review the operation of the business and work with the debtor to work a reorganization plan. A Chapter 11 debtor must submit a reorganization plan to the bankruptcy court within 120 days from the date of order for relief. If no plan is submitted by the debtor within 120 days or the creditors do not approve the plan submitted by the debtor within 180 days, any creditor can submit a reorganization plan.
A Chapter 11 plan must specify the classes of creditors and what each class will get under the plan. The plan must be approved by the specified classes by majority vote – both by number and by value (2/3 in dollar value) within each class. After the creditors approve a Chapter 11 reorganization plan, the bankruptcy court must approve it.
A small business having debts of less than $2,000,000 can file under Chapter 11 as a small business. An experienced bankruptcy attorney can review your business and advice you on the eligibility of your business to file as a small business. If a business files as a small business under Chapter 11, then there is no requirement for a separate hearing to approve the disclosure statement. Instead this hearing can be combined with the confirmation hearing. There need not be a creditors committee when a business files for Chapter 11 protection as a small business. Only the business has the business has the right to file a plan within 100 days from the date of the order for relief. A party in interest can file a plan only after 100 days but before 160 days.