In this article, you can find answers to questions like:
- How will my assets be treated in a Chapter 11 filing as a private individual or business owner?
- Can a Chapter 11, Subchapter 5 bankruptcy filing help protect my assets as a small business owner?
- How long does a Chapter 11 bankruptcy filing typically last?
When Is Chapter 11 The Right Choice?
A majority of Chapter 11 cases are filed by businesses. And while Chapter 11 cases filed by individuals are rare, they do happen.
For example, consider a situation that our firm handled in the past . . .
We represented an individual in a Chapter 11, Subchapter 5 business case. The client was the sole proprietor of a medical practice. While the client was an individual that received bankruptcy exemptions, they were also able to protect property as a majority of their debt was caused by a business.
If the majority of your debt is related to your business, a Chapter 11 bankruptcy filing may be the right choice for you. The best way to find out is to contact a trusted bankruptcy law firm for an initial consultation at your earliest convenience.
What Assets Are Lost In A Chapter 11 Bankruptcy Case?
For individuals who file Chapter 11 bankruptcy cases, their risk of lost assets is the same as those who file a Chapter 13 case. As with any bankruptcy filing, the way your assets will be handled will vary – depending on your unique circumstances.
You may be able to liquidate assets through a Chapter 11 plan, or you may be able to keep assets through a Chapter 11 plan.
For businesses filing Chapter 11 bankruptcy, other considerations must be made. Because businesses are not treated as individuals in these matters, they are not entitled to bankruptcy exemptions.
A Chapter 11 plan has to provide unsecured creditors with a minimum of what they’ll receive in Chapter 7. This is called the debtor’s liquidation value.
To understand the debtor’s liquidation value, you can consider the following example:
If a business files for Chapter 11 bankruptcy, the value that must be received by its general unsecured creditors will be the liquidation value of the business as a whole.
In such a case, it’s necessary to determine the business’ assets and assess their value. It’s also necessary to determine whether the business could be sold as a “going concern” and whether or not such a sale would provide more than the assets alone.
Additionally, you will deduct secured creditors from the total value of the business and its assets.
Understanding the loss that will be caused by a Chapter 11 bankruptcy case is an essential part of your decision to ever file in the first place. Contacting a trusted Chapter 11 bankruptcy attorney can provide you with the insight you need to make an informed decision.
What Type Of Debts Will Be Discharged In A Chapter 11 Bankruptcy?
For an individual: You will be able to discharge your debts in the same way that a Chapter 7 filing would allow.
For a business: Debts are not discharged at all. Instead, they are treated under a bankruptcy plan. After a plan has been confirmed, an injunction is filed that stops creditors from being able to pursue collections actions against the debtor.
Will A Business Be Able To Operate As Usual During A Chapter 11?
Generally speaking, businesses are able to operate normally during Chapter 11 bankruptcy filings. There are, however, certain duties that a business debtor would have in their Chapter 11 case.
In addition to providing operating reports to bankruptcy courts on a monthly basis, other issues will be resolved on the first day of Chapter 11 motions. These can include:
- Payment or prepetition wages to employees,
- Use of cash collateral,
- Setting adequate insurance payments for utilities to ensure ongoing customer deposits
- Payment of critical vendors,
- And more . . .
The Timeframe Of Different Chapter 11 Filings
Unlike Chapter 7 bankruptcy filings, the duration of a Chapter 11 bankruptcy case will vary – depending on the type of Chapter 11 case that is filed.
For small businesses who file under Subchapter 5, the plan has to be filed within 90 days of the filing date. This timeframe cannot be extended without showing that the circumstances causing the delay are outside of the debtor’s control. Subchapter 5 has many advantages for small businesses, but it is a rush procedure (meaning that the process is typically expedited).
In other types of Chapter 11 cases, the debtor must file a plan within either 180 or 300 days of the filing date (depending on the type of case). However, these cases can be extended by the court upon ensuring that the debtor will likely confirm a plan within the time provided for in the extension.
After a plan is confirmed, the process will end once the plan is substantially consummated. This means that once payments have been completed or an asset properly liquidated, the case will come to an end.
For more information Bankruptcy Law in New York, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (516) 550-5467.