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Top 3 Things You Should Know About Reorganization Under Chapter 11

  • July 24, 2020

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Many businesses wonder what their options are when it comes time to file for bankruptcy, filing for chapter 11 could be their best choice. A company would want to choose this option if the amount gained from liquidating all their assets would be less than operating as normal. Chapter 11 gives the company a chance to restart and still not have any of the operations be influenced. A business attorney can hep figure out options when a business files chapter 11 bankruptcy

What is Chapter 11? 

The first thing we need to discuss when asking the top 3 things to know about reorganization under chapter 11 is, what is chapter 11? The quick answer would be that chapter 11 bankruptcy provides a process for rehabilitating a company’s faltering business. Many companies file chapter 11 because they are still able to run the business, and it also allows them to control the bankruptcy process while they attempt to become profitable again. It additionally provides protection from creditors as they do this. The goal of the bankruptcy court is to help businesses and companies keep operating while they try to figure out a plan to manage their debt. The bankruptcy court will review the overall operations, determine a reorganization plan and halt the actions of creditors to enable the company to get a grip on its finances in the hopes it can become profitable. 

Starting the Chapter 11 Process 

When a company is considering filing chapter 11 bankruptcy, the first thing they should do is hire an experienced business law firm to help them through the process. The business law firm will meet with the company executives to explain the process and answer any and all questions the company might have. They will also begin to gather the necessary corporate documents that are needed in order to support a chapter 11 bankruptcy. These business lawyers will be there to help consult and work with a company through the process while allowing the company to still maintain its normal business operations. 

Approval of the Chapter 11 Plan

Approval of a chapter 11 plan is what they call “confirmation” The court the chapter 11 was filed holds all the power in regard to getting these plans approved. To do this, the plan must meet several requirements in order to begin the reorganization process. The requirements include: 

Feasibility: The chapter 11 plan is reviewed by the bankruptcy court and they must determine if the proposed plan has a likelihood of succeeding. In better terms “is it feasible”. The company or business that is filing the chapter 11 must show the courts that is has the ability to raise the funds needed over the set time period the plan states. 

Best interest of creditors: In order for the company to be approved of a chapter 11 bankruptcy, the plan must be in the best interests of the creditors. Essentially, the creditors must receive the amount they would be owed if the company was filing for chapter 7 bankruptcy. This ensures the creditors will get some of their money back while still helping the company that is filing get a better grasp of their finances. 

Good Faith: The court will have to determine if the plan for chapter 11 has been created in good faith and not by the means prohibited under the law. 

Fair and Equitable: This entails that the secured creditors have to be paid, over the months or years the plan requires. And that the owners of the company can’t retain anything of value because of their equity interests. Unless, their other financial obligations are paid off in full. 

Related:How Does Bankruptcy Work?

Hire a Chapter 11 Bankruptcy Attorney to Help You

There are many options and plans a company can take when looking at filing for chapter 11 bankruptcy. It is a process that is difficult for many business owners as they do not know the ins and outs of the bankruptcy courts laws. A bankruptcy attorney can help a company file for chapter 11 bankruptcy in the hopes that it can start turning a profit. They will handle all of the processes necessary to file the chapter 11 while the business owner keeps running the business they love so much. If your company is thinking of filing for chapter 11 bankruptcy, hire a bankruptcy attorney today.