CHAPTER 11 BANKRUPTCY
A Chapter 11 bankruptcy is commonly known as a “business reorganization” although it is available to individuals as well. Simply put, Chapter 11 bankruptcy allows a business or individual the opportunity to reorganize its debts or liquidate its property while being protected from creditors. A Chapter 11 debtor proposes a Plan of Reorganization, which provides for the payment of debts. A Plan which is accepted by a majority of the creditors or pays 100% of all debts, will be confirmed. After the Plan is confirmed, the debtor emerges from Bankruptcy with the payment plan provided for in the Plan. In Chapter 11, there is generally no Trustee and the debtor manages its affairs as the “debtor in possession.” Chapter 11 bankruptcy can be a valuable tool if you own and operate a viable business that is burdened by excessive debt, if you seek to orderly liquidate valuable business assets over time or are an individual with large debt and valuable assets you wish to retain.
WHAT TO EXPECT ONCE YOU FILE FOR CHAPTER 11
When you are ready, you will meet with an attorney to find out if Bankruptcy is right for you. At your first meeting, the attorney will tell you about your Bankruptcy options (including Chapter 11, if applicable) and assist you in understanding the process. A skilled Bankruptcy attorney will answer all of your questions in an understandable way and provide you with a Bankruptcy Questionnaire. Don’t be afraid to ask questions, it is important that you be fully informed before you file your case.
If you decide to file for Bankruptcy protection for you or your business under Chapter 11 you will schedule a follow-up appointment to bring in your information. At this appointment, you will be return the Bankruptcy Questionnaire you received at your first meeting which provides the attorney with information regarding property, debts, income and expenses. You will also be required to produce certain documents such as accounting statements, bank statements, tax returns and insurance information. Again, ask questions!
At your final appointment, the attorney will ask you to review and sign your Chapter 11 Bankruptcy Petition, Statements and Schedules. Your Chapter 11 Plan will generally be prepared and filed at a later date. It is important that you read these documents carefully to make sure they are correct. The Bankruptcy process will go much smoother if you provide detailed, accurate information.
Shortly after filing your Chapter 11 case, you will receive a request for any additional documents including updates to the information previously provided. This request will also include additional information to help you make your Chapter 11 a success. Be prepared to meet frequently with your attorney during the initial stages of the process.
Meeting with the U.S. Trustee
Shortly after your case is filed, a meeting will be scheduled with the US Trustee, a division of the Department of Justice. At the meeting, you and your attorney will discuss the case with your assigned analyst. At the meeting a you and your attorney will discuss the case with the US Trustee’s representative. This meeting sets the stage for a successful Chapter 11 and is an important step in the process. Shortly after the initial meeting, you will be required to attend a “Section 341 Meeting of Creditors.” Your attorney will attend this meeting with you. An attorney for the US Trustee will also attend this hearing and creditors have the opportunity to attend. The US Trustee representative will interview you and ask you a series of questions about your case. The questions are straightforward and not meant to trick you. You are there to testify as to the truthfulness of the information contained in your Bankruptcy papers. The meeting is designed to give creditors an opportunity to appear and ask you questions. While the meeting is a very important part of the Bankruptcy process and you must be absolutely truthful in answering the questions, the atmosphere is informal and not meant to be intimidating or harassing. If you get stumped, your attorney will be there to assist you.
What Happens Next?
After your meeting, your attorney has a set time period in order to propose a Plan of Reorganization.. Your attorney will work to resolve any concerns the US Trustee or Creditors may have. Once all issues have been resolved and all interested parties are in agreement, the Plan will be confirmed by the Bankruptcy Judge.
After confirmation, you as the “debtor in possession” will follow the terms of the Plan to pay your creditors. At least through confirmation of the Plan, you will be required to file a financial report with the US Trustee, which includes a monthly fee. After completion of the Plan, your attorney will file documents informing the Court that the Plan has been completed.