Chapter 11 Bankruptcy

Chapter 11 Bankruptcy

Business or Personal Re-Organization



Chapter 11 The “Reorganization” Bankruptcy Process and Procedures

 

In this guide designed for the debtor, you will find important information on chapter 11 bankruptcy. Please note that the rules are slightly different from a regular bankruptcy case for a “small business case,” as well as for single asset real estate debtors. This guide focuses on regular bankruptcy cases. Scroll to the end of this guide for “small business case” and single asset real estate debtor definitions.

 

Seeking the advice of a qualified attorney is strongly recommended because bankruptcy has long-term financial and legal outcomes. Misunderstandings of the law or making mistakes in the process can affect your rights. Court employees and bankruptcy judges are prohibited by law from offering legal advice. 

 

Step 1:

With the help of an attorney, decide whether to file a bankruptcy petition at all, as well as determine under which chapter to file.

For purposes of chapter 11 and this guide, here is some general guidance as to who can and cannot file:

  • CAN FILE:

Individuals or married couples and businesses such as a corporation, partnership, or sole proprietorship

 

  • CANNOT FILE:

- During the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court

- During the preceding 180 days, a prior bankruptcy petition was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens 11 U.S.C. §§ 109(g), 362(d)-(e)

- Within 180 days before filing, you are an individual or married couple who has NOT received credit counseling from an approved credit counseling agency 11 U.S.C. §§ 109, 111

- Stock and commodity brokers are restricted to chapter 7. 11 U.S.C. § 109(d)

 

Step 2:

If you are an individual (or husband and wife), receive pre-bankruptcy credit counseling from an approved credit counseling agency either in an individual or group briefing within 180 days before filing. 

Obtain a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling as individuals (or husbands and wives) must file these. 11 U.S.C. § 521

 

Step 3:

File a bankruptcy petition.

Hint: ALL Bankruptcy Forms are available for free here www.uscourts.gov/bkforms/index.html .

Voluntary petition:

  • This is filed by the debtor utilizing Form Number B 101 of the Official Forms.
  • The debtor also must file (1) schedules of assets and liabilities; (2) schedule of current income and expenditures; (3) schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. Fed. R. Bankr. P. 1007(b)
  • There are additional document filing requirements for individuals (or husbands and wives). 11 U.S.C. § 521
  • $1,167 case filing fee and $550 miscellaneous administrative fee à The fees must be paid to the clerk of the court upon filing or may, with the court's permission, be paid by individual debtors in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b)

Involuntary petition:

  • This is filed by creditors that meet certain requirements. 11 U.S.C. §§ 301, 303

 

Step 4:

The Automatic Stay

  • A stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. 11 U.S.C. § 362(a)
  • The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition.

 

Step 5:

The chapter 11 debtor automatically assumes an additional identity as the debtor in possession. 11 U.S.C. § § 1101

The debtor in possession duties are set forth in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. 11 U.S.C. §§ 1106, 1107; Fed. R. Bankr. P. 2015(a)

Here is a list of some of the debtor in possession duties:

- Accounting for property

- Examining and objecting to claims

- Filing informational reports as required by the court and the U.S. trustee

- The right, with the court's approval, to employ attorneys, accountants, appraisers, auctioneers, or other professional persons to assist the debtor during its bankruptcy case

- Filing tax returns and reports which are either necessary or ordered by the court after confirmation 11 U.S.C. §§ 1106, 1107; Fed. R. Bankr. P. 2015(a)

 

Step 6:

Meet the U.S. Trustee.

  • The debtor will be made aware of this person as they play a major role in monitoring the progress of a chapter 11 case and supervising its administration.
  • The U.S. trustee program is administered by the Department of Justice.
  • By law, the debtor in possession must pay a quarterly fee to the U.S. trustee for each quarter of a year until the case is converted or dismissed. 28 U.S.C. § 1930(a)(6)

 

Step 7:

In addition to the U.S. Trustee, a case trustee (or examiner) may be appointed or elected, although this is rare. If this happens, the case trustee in effect subsumes the identity of debtor in possession.

  • Appointment of a case trustee FOR CAUSE à The court, on motion by a party in interest or the U.S. trustee at any time prior to [plan] confirmation and after notice and hearing, shall order the appointment of a case trustee for cause, including fraud, dishonesty, incompetence, or gross mismanagement, or if such an appointment is in the interest of creditors, any equity security holders, and other interests of the estate. 11 U.S.C. § 1104(a)
  • Appointed à The trustee is appointed by the U.S. trustee, after consultation with parties in interest and subject to the court's approval. Fed. R. Bankr. P. 2007.1
  • Elected à Alternatively, a trustee in a case may be elected if a party in interest requests the election of a trustee within 30 days after the court orders the appointment of a trustee. In that instance, the U.S. trustee convenes a meeting of creditors for the purpose of electing a person to serve as trustee in the case. 11 U.S.C. § 1104(b)
  • Termination of appointment à Upon the request of a party in interest or the U.S. trustee, the court may terminate the trustee's appointment and restore the debtor in possession to management of bankruptcy estate at any time before confirmation. 11 U.S.C. § 1105
  • Examiner à The role of an examiner is generally more limited than that of a trustee. The examiner is authorized to perform the investigatory functions of the trustee and is required to file a statement of any investigation conducted. If ordered to do so by the court, however, an examiner may carry out any other duties of a trustee that the court orders the debtor in possession not to perform. 11 U.S.C. § 1106

 

Step 8:

File and get court approval of a written disclosure statement.

The disclosure statement is a document that must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor's plan of reorganization. 11 U.S.C. § 1125

 

Step 9:

File a plan of reorganization with the court.

  • The debtor has a 120-day period during which it has an exclusive right to file a plan. 11 U.S.C. § 1121(b) This exclusivity period may be extended or reduced by the court. But in no event may the exclusivity period, including all extensions, be longer than 18 months. 11 U.S.C. § 1121(d)
  • After the exclusivity period has expired, a creditor or the case trustee may file a competing plan. The U.S. trustee may not file a plan. 11 U.S.C. § 307
  • The plan includes:

- Section 1123(a) of the Bankruptcy Code lists the mandatory provisions of a chapter 11 plan

- Section 1123(b) lists the discretionary provisions

- Designated classes of claims and interests for treatment under the reorganization 11 U.S.C. § 1123(a)(1)

- Generally, a plan will classify claim holders as secured creditors, unsecured creditors entitled to priority, general unsecured creditors, and equity security holders.

 

Step 10:

Upon approval of a disclosure statement, mail the following to the U.S. trustee and all creditors and equity security holders:

(1) the plan, or a court approved summary of the plan;

(2) the disclosure statement approved by the court;

(3) notice of the time within which acceptances and rejections of the plan may be filed; and

(4) such other information as the court may direct, including any opinion of the court approving the disclosure statement or a court-approved summary of the opinion. Fed. R. Bankr. P. 3017(d)

In addition, the debtor must mail to the creditors and equity security holders entitled to vote on the plan or plans:

(1) notice of the time fixed for filing objections;

(2) notice of the date and time for the hearing on confirmation of the plan; and

(3) a ballot for accepting or rejecting the plan and, if appropriate, a designation for the creditors to identify their preference among competing plans. Fed. R. Bankr. P. 3017(d)

 

Step 11:

Solicit acceptances of the plan of reorganization.

  • The debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. 11 U.S.C. § 1121 The court may extend (up to 20 months) or reduce this acceptance exclusive period for cause. 11 U.S.C. § 1121(d)
  • If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties in interest in a case, such as the creditors' committee or a creditor, may file a plan. Such a plan may compete with a plan filed by another party in interest or by the debtor.
  • Under section 1126(c) of the Bankruptcy Code, an entire class of claims is deemed to accept a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class.
  • Under section 1129(a)(10), if there are impaired classes of claims, the court cannot confirm a plan unless it has been accepted by at least one class of non-insiders who hold impaired claims (i.e., claims that are not going to be paid completely or in which some legal, equitable, or contractual right is altered).
  • Under section 1126(f), holders of unimpaired claims are deemed to have accepted the plan.

 

Step 12:

Ballot vote on the plan, notice, and confirmation hearing  

  • Creditors whose claims are "impaired," i.e., those whose contractual rights are to be modified or who will be paid less than the full value of their claims under the plan, vote on the plan by ballot. 11 U.S.C. § 1126
  • After the disclosure statement is approved by the court and the ballots are collected and tallied, and after notice, the court will conduct a confirmation hearing to determine whether to confirm the plan. 11 U.S.C. § 1128

 

Step 13:

Post-filing and pre-discharge debtor education

Debtor education must take place after you file and a certificate of completion is required before the filer’s debts can be discharged. 

 

Step 14:

Generally, confirmation of a plan discharges a debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor is required to make plan payments and is bound by the provisions of the plan of reorganization. 11 U.S.C. § 1141(d)(1)

 

Step 15:

Report on the progress made in implementing a plan after confirmation. 11 U.S.C. §§ 1106(a)(7), 1107(a)

 

Step 16:

Apply for a final decree.

A final decree closing the case must be entered after the estate has been "fully administered." Fed. R. Bankr. P. 3022 Local bankruptcy court policies generally determine when the final decree is entered and the case closed.

 

 

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.  

 

Image credit: John Unwin Unsplash.com

 

 

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