Chapter 11 Bankruptcy Law Explained
Chapter 11 is commonly employed by corporations and partnerships.
This chapter is also a solution for individuals with debts and assets that are too large to be eligible for other bankruptcy chapters.
Chapter 11 differs from other cases in several ways.
“The most notable aspect is that not all Chapter 11 cases are voluntary”, says a chapter11 bankruptcy attorney in MD. “Creditors can also force a debtor into bankruptcy under certain circumstances”.
Once you file for Chapter 11, an automatic stay takes effect – as is the case in other chapters.
The stay which temporarily prohibits lenders from pursuing collection, will allow you an opportunity to regroup a strategy for the future.
Admittedly, Chapter 11 begins with a petition.
It could be filed by you or by your creditor.
The collection activity halts.
In other words the stay will temporarily halt:
- Payment requests
- Evictions or foreclosure
- A collection trial or any legal action
Keep in mind that a criminal case, if any, will continue despite the stay.
“Criminal cases such as an assault are not related to debt problems”, says a chapter 11 attorney Maryland. “So it is obvious that the matter is outside the purview of a bankruptcy court”.
The most important aspect of Chapter 11 is that you retain control of your business.
Even a trustee is not put in charge of your business or property.
You will continue to run your business as a “debtor in possession”.
The main objective of Chapter 11 is that you create a financial plan that the creditors and the court will agree so that your business will prosper.
The plan can include:
- Modified interest rates
- Change in payment due dates
- Other terms
However, the going will not be a cakewalk.
Your plan must be accompanied by a disclosure statement, which must provide the creditors with adequate information so that they can take an informed decision with regard to your plan.
If the creditors feel their interests are not taken care of, they can vote not to accept the plan.
“Creditors take an active role in a Chapter 11 case”, says one chapter 11 bankruptcy attorney MD. “So it is no surprise that plan confirmation takes a longer time to pull off than in a Chapter 13 case”.
There is no doubt that Chapter 11 bankruptcy is a powerful tool for debtors.
Most other types of bankruptcies focus on clearing debt. The objective of Chapter 11 is to put your business back on a firm footing.
The going is tough because the considerations of both the debtor and the creditors must be met.
“It is a challenge to find solutions that safeguard the debtor interest and keep the businesses running, while concurrently protecting the creditors”, says a Chapter 11 attorney Maryland.
If you are contemplating to file for Chapter 11, remember that your lawyer needs to have a comprehensive understanding of the bankruptcy process and also business and accounting issues.
Not many attorneys can handle a Chapter 11 case. Choose a bankruptcy law firm that has lawyers with the level of knowledge necessary and also the capability to guide you through Chapter 11 bankruptcy.