Sometimes, a business has to file bankruptcy to reorganize its finances and come out of debt. A Chapter 11 bankruptcy is also called a reorganization bankruptcy. Here are some frequently asked questions regarding chapter 11 bankruptcy.
Why Do Companies File for Chapter 11?
An organization files for Chapter 11 bankruptcy because of financial doldrums. As a result, this financial situation prevents the business’s ability to remain profitable and settle its debts. Filing for Chapter 11 bankruptcy allows an organization to reorganize its affairs and restructure its debts.
Many businesses opt for Chapter 11 bankruptcy because of operational conflicts, increased competition, ineffective business strategies, and economic weakness. Fraud, illegal activities, and lawsuits may also drive a business to file for bankruptcy. This form of bankruptcy allows a business to retain its assets and gives it a chance to negotiate with creditors and set new terms for its debts.
What Is the Process of Filing for Chapter 11?
The process of filing for Chapter 11 begins with filing a petition. The petition involves a list of your organization’s assets, debts, income, and expenses. The petition should be filed with the bankruptcy clerk’s office.
After filing a petition, you’ll get an automatic stay. This is a court order that prevents creditors from contacting you. During this period, you must file monthly reports with the court. These reports list your income and expense reports. These monthly financial reports are provided to your creditors, the United States Trustee, and the court. If your reports aren’t feasible, the court will not approve your repayment plan.
What Is a Confirmation of the Reorganization Plan?
After proposing a debt repayment plan within 120 days from the day of filing a bankruptcy petition, the court will give you another 180 days for the confirmation of your reorganization plan. The plan will, among other things, list all your creditors. In the plan, some debt is discharged or negotiated for less money. The repayment plan is normally lower than the original debt amount.
With Chapter 11 bankruptcy, your plan doesn’t need to be approved by all your creditors; the reorganization plan requires at least two-thirds of the creditors’ approvals. When the court accepts the plan, it becomes binding and shows how debts will be settled during the plan duration.
What Are the Requirements for Filing for Chapter 11?
When filing for Chapter 11, you’re required to pay a fee of $571. You’ll pay more if you and your business partners are filing separately. Apart from the filing fees, you’re required to file a cash-flow statement, statement of operations, and the most current balance sheet.
The court also requires you to file your current federal income tax returns. You’re also required to file reports on your business’s profitability and projected income and expenses.
What Is the Purpose of a Debtor Interview and Meeting Creditors?
When filing for Chapter 11, you may have to go for a debtor interview. During this meeting, the United States Trustee meets with you to learn more details about your bankruptcy case and to reaffirm your responsibilities. After this meeting, if your case is approved, you’ll have to pay a quarterly fee to the U.S. Trustee. This fee ranges from $325 to $30,000.
Failing to submit reports to the U.S. Trustee and pay the quarterly fee may have your case dismissed. The U.S. Trustee also convenes the 341 meeting of creditors. This is a hearing that allows your creditors to question you under oath. This meeting occurs 30 to 45 days after filing for bankruptcy.
Chapter 11 bankruptcy is one of the many bankruptcies you can file to restructure your business’s finances and get out of debt. To help you navigate the complex process of filing for bankruptcy, you should hire a lawyer. The Madden Law Firm can help you with your bankruptcy case. Call us, so we can review your case and help you file for bankruptcy.