What Constitutes Chapter 11 Bankruptcy?
Chapter 11, named after the U.S. bankruptcy Code 11, is a form of bankruptcy
that involves the reorganization of a debtor’s business affairs,
debts, and assets. Corporations generally file Chapter 11 if they require
time to restructure their debts, and this process of
bankruptcy essentially gives the debtor a fresh start.
However, the terms of the agreement are subject to the debtor’s fulfillment
of its obligations under the reorganization plan. During a Chapter 11
proceeding, the court will help a business restructure its debts and obligations
after evaluating all the relevant documents provided.
In most cases the firm will remain open and operating during the process.
In most cases the debtor will run the business as usual. (Though in cases
involving fraud, dishonesty, or gross incompetence, a court-appointed
trustee steps in to run the company throughout the entire bankruptcy proceeding).
Our Chapter 11 bankruptcy lawyer is here to help. Give us a call
(561) 220-2528 or reach out to our firm online
here to learn more about how
Attorney Julianne Frank can help.
How Common Is Chapter 11?
Many large U.S. companies like General Motors and United Airlines have
actually filed for Chapter 11 bankruptcy and stayed active. Corporations,
partnerships, and limited liability companies usually file Chapter 11,
but in rare cases individuals with a lot of debt may also be eligible
for Chapter 11.
Note that a business in the process of filing Chapter 11 is not able to
make certain decisions without the permission of the courts, such as actions
- selling assets
- starting or terminating a rental agreement
- and stopping or expanding business operations
The court also has control over decisions related to retaining and paying
attorneys and entering contracts with vendors and unions.
The debtor also cannot arrange a loan that will commence after the bankruptcy
However, in any case the individual or business filing Chapter 11 bankruptcy
has the first chance to propose a reorganization plan that may include
downsizing business operations to reduce expenses or renegotiating debts.
If the chosen path is deemed feasible and fair, the courts will accept
it and move the process along.
Why Do Most Chapter 11 Bankruptcy Filings Fail?
Common circumstances that lead to Chapter 11 are:
- lawsuits that end badly
- economic downturn
- unanticipated competition
- excessive or unexpected debts
- poor marketing
- loans that mature or are accelerated due to a default
- bad management
Chapter 11 can often fix the above problems, but it will require careful
planning and deft hands. Most Chapter 11 cases do not succeed primarily
because the lawyer who filed did not undertake enough pre-filing analysis
and develop an effective game plan.
How to Choose the Right Chapter 11 Bankruptcy Lawyer
That is, the cases did not have enough of the elements necessary to succeed
in the first place and should never have been filed the way the attorney
did. If you are considering Chapter 11, you should first ask your lawyer
about their process of evaluating the case and the potential exit strategy.
If the lawyer does not drill down and look at financials in detail and
evaluate the nature of the debts, it is unlikely they can conjure an exit
scenario. The lawyer you choose to take on your case should be able to
fully understand how the case is likely to end before it is filed; if
they do not clearly explain how your facts and figures will lead to a
successful outcome, they’re probably winging it, which isn’t
in your best interests.
What Questions Should You Ask When Choosing a Bankruptcy Attorney?
Chapter 11 proceedings are expensive cases to file, and you should think
long and hard before signing up for one with a lawyer who doesn’t
Some good questions to ask when choosing a bankruptcy lawyer are:
- Does the lawyer understand exactly how my business works?
- Did the lawyer look at my loan documents, and lawsuit pleadings?
- Did they study my financials?
- Did the lawyer give me a spreadsheet showing the probable outcomes of my case?
- Did the lawyer explain how Chapter 11 unfolds, and what tools are available
to modify debts?
- Did they explain the problems that can arise and the likelihood of overcoming