Chapter 11, Bankruptcy Law, What Is It?

Posted by Audus Zinkman

May 21, 2010

Chapter 11 is a choice in the Bankruptcy Code typically known to be appropriate for businesses most notably corporations, partnerships or sole proprietors due to complexity and length of the procedures as well as the fees involved. In addition, you will notice distinctions in the procedure for the three groups of debtor. As with other bankruptcy types, individuals, or husband and wife, looking to file chapter 11 bankruptcy has to go through credit counseling. Corporations’ personal assets are not included in chapter 11 bankruptcy proceedings other than the stocks belonging to the company, but partnerships might find personal assets involved and sole proprietors can prepare for both personal and business assets being susceptible to rulings. Cases classified as ’small business’ may possibly proceed at a speedier pace and be subject to a lesser number of official demands than other cases, but becoming a small business debts must remain below approximately $2.2 million with no creditors’ committee involvement.

Filing under chapter 11 could be at the debtor’s discretion or it might be an involuntary petition filed by creditors. All debtors have to produce to the court with full disclosure statements of all debts and assets (the extent of the disclosure statement differs depending on the type of debtor) and pay fees of more than $1000 in addition to a repayment or liquidation plan.

Filing a voluntary chapter 11 petition implies the debtor remains responsible for the business and is known as the ‘debtor in possession’. The debtor in possession carries substantial responsibilities to look after and move the case along. any delays may have negative repercussions. A US trustee maintains a close supervisory role over the case pertaining to the operation of the business mandating reports on all work related activities which include operating expenses and income. The US trustee might have the case converted under the Bankruptcy code under the circumstance that the debtor in possession be found to negligent in proceeding with confirmation of a plan or elsewhere forget to report properly on the activities with the business. Furthermore the us Trustee is paid by the debtor in possession. Additional officials may be involved with an in-depth on-going chapter 11 petitions such as a case trustee or an examiner who works together with the trustee. Creditors’ committees could possibly be formed of unsecured creditors to cooperate with the debtor in possession and could also hire other specialists with the courts discretion.

Chapter 11 requires a repayment plan must cover what types of claims are to be sorted out and how they will be addressed. The plan with the disclosure statement will have to provide sufficient information for creditors to evaluate the viability of the plan. There is a chance to vote by ballot to the creditors who cannot necessarily anticipate full pay back from the plan. In addition, creditors are able to provide different plans.

Following filing, you have the normal period where an automatic stay will come in to act regarding the actions on most creditors. Nonetheless, some secured creditors can petition the court for the right to foreclose on property under special conditions such as in the case of single asset real estate debtors. This sort of action on the part of creditors and other possible motions related to stays can be forestalled by the confirmation of a plan or commencement of repayment of interest on debt to the creditor.

Compliance to the requirements of a confirmed plan usually leads to discharge of debts accrued before confirmation. But, under chapter 11, only individuals are granted discharge as a result of confirmation of a liquidation plan.

Audus Zinkman is an expert on San Antonio Bankruptcy. He has worked in the legal field for over ten years. His main focuses are on San Antonio Chapter 11, Chapter 7, Chapter 12, Chapter 13, foreclosure defense, and credit card defense. For more information please visit his site, San Antonio Attorney.

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