Chapter 11 Bankruptcy Debt Relief

Chapter 11 Bankruptcy Debt Relief

Under the Bankruptcy Code, businesses such as corporations, sole proprietors and partnerships are given the option of Chapter 11, due to its expense and complexity. These three classes of debtor face distinctly different procedures. Individuals and couples are obliged to seek credit counseling. Under Chapter 11, the personal assets of corporations are not involved, other than stocks. However, sole proprietors are likely to face rulings affecting both their personal and business assets and partnerships may also have to deal with this. Cases with debts of lower than $2.2 million and no creditors’ committee may be designated ‘small business’, allowing for a faster pace and less in the way of official demands.

There are two ways in which chapter 11 may be filed, either by the choice of the debtor or involuntarily, filed by creditors. The filing requires that the debtor pay fees in excess of $1000 and provide a repayment or liquidation plan. They must also supply the court with statements that fully disclose all debts and assets, with some variation according to the type of debtor.

Under a voluntary chapter 11 filing, the debtor becomes a ‘debtor in possession’, remaining in control of the business. However, they are responsible for managing and moving the case along, with considerable repercussions for tardiness. The operation of the business is closely supervised by a US trustee, and the debtor must report on operating expenses and income, and other business activities. If the debtor in position is failing to file these reports or being slow on proceedings, the case can be converted. The debtor is responsible for paying the trustee.

The Chapter 11 petitions may include supplementary officials in the complex on-goings, possible a case trustee or an accompanying examiner. Unsecured creditors may form the committees, and with the court’s discretion, possibly hire other professionals to work with the debtor in possession.

There are various requirements under Chapter 11. A repayment plan must be put together. This, along with a disclosure statement, must show what types of claims need to be dealt with and how, with enough details for creditors to properly judge the plan. As creditors cannot always rely on full repayment under a given plan, they are given an opportunity to both vote on the plan and provide alternatives.

The filing leads to an automatic stay period, in which creditors are not allowed to take action. The exception is certain secured creditors, who may request permission from the court to foreclose. This is generally limited to special circumstances, such as single asset real estate debtors. The conformation of a plan or commencement of repayment, at least of interest, can forestall any motions or actions related to stays.

Following the specifics of a confirmed plan usually will lead to the discharge of debts gained before confirmation. However, under chapter 11, an individual will only be granted discharge with the confirmation of a liquidation plan.