A business in substantial debt can file a Chapter 11 bankruptcy for debt relief. A Chapter 11 Bankruptcy is a reorganization bankruptcy which allows debtors to continue operation. The debtor is subject to the oversight and jurisdiction of the court. It is a bankruptcy protection available for sole proprietorships, corporations, limited liability companies, and some individuals.
Filing a Chapter 11 Bankruptcy
In Utah, the Chapter 11 bankruptcy plan must be approved by the bankruptcy court in the area where the debtor has a residence or domicile. It is often the debtor that voluntarily files a Chapter 11 case but there have been situations where creditors do the filing. The individual and business debt will have to be reorganized as required by the court.
The court may decide to approve a second mortgage or allow secured debt to be treated as unsecured debt. It may also lower the secured debt that has depreciated to the current market value. This shows just how complicated this bankruptcy can be, and that is why you need an attorney to guide you through the bankruptcy process.
Benefits of Chapter 11
Filing a Chapter 11 bankruptcy allows a business owner or individual debtor get relief from creditors. It gives the business owner or individual an opportunity to communicate with the secured mortgage lender about payment options. This means that the payment plan that may come out of that communication will be feasible. It is up to the debtor to convince the court that the payment plan is likely to succeed and that it is in the best interest of the creditors. The input from creditors and other parties will be considered by the court in deciding how to proceed.
Commercial and residential property is protected from foreclosure and debtors are protected from litigation if a debtor files a Chapter 11 bankruptcy. Business operations will be allowed to continue but a trustee will be appointed if the court discovers cases of dishonesty, fraud, gross mismanagement and incompetence. The court could also appoint a trustee if the court decides it is in the best interest of the creditors. However, courts rarely appoint trustees in Chapter 11 bankruptcy cases.
Timeframe of Chapter 11
The debtor needs to propose reorganization plan within a period of 4 months after filing for a Chapter 11 and will have 180 days to solicit for the plan. However, the periods can be extended if the debtor requests for the extension with a valid reason. The creditor’s committee and other parties will also have an opportunity to propose their own reorganization plan. However, what usually happens is that if the creditors are not satisfied with the debtor’s plans, they move to dismiss or convert the case to a Chapter 7.
Any business can file for a Chapter 11 but an individual needs to meet certain requirements before filing. An individual with secured debt that exceeds $1,010,650 or unsecured debt that exceeds $336,900 is eligible to file a Chapter 11. Not many people know that individuals can file a Chapter 11 bankruptcy.