Even well-managed businesses often take out loans to acquire and maintain their facilities and equipment, pay their employees and meet the other operational costs. Sometimes, because of unfortunate decisions or circumstances beyond their control, business debts become too difficult to manage. Chapter 11 allows a company in financial distress to stay in business while also reorganizing its debts so it can become solvent. However, Chapter 11 can be a difficult, expensive, time-consuming process. With four decades of bankruptcy experience, Gates Law Group, A Professional Corporation will provide the skilled and effective representation you need, whether you are a business owner who needs to reduce debt or a creditor seeking to protect security interests.
A Chapter 11 bankruptcy is normally used by corporations, limited liability companies or partnerships to reorganize their debts while remaining in business. In rare circumstances, individuals who don’t qualify for Chapter 7 or Chapter 13 may use it too. Real estate investors sometimes choose Chapter 11 because they can use it to modify their mortgages in their favor. There is also a special procedure designed to make the process easier for small businesses, known as Subchapter V, which was added by the Small Business Reorganization Act of 2019. If your business is in debt, we can advise you whether Chapter 11 is right for it.
The Chapter 11 process begins with filing a petition, listing all of your assets, income, expenses, debts and creditors and summarizing the company’s financial affairs. In some cases, a group of creditors may file the case, known as an involuntary Chapter 7. Once the case is filed, the business continues to operate, but you must get court approval of any major decisions, such as selling assets, making or breaking contracts or closing or expanding business operations, and creditors may weigh in on those decisions. If you are a debtor and hire us to represent you in a Chapter 11 bankruptcy, we will prepare the appropriate documents, deal with your creditors and work assiduously to protect your interests when the court must approve a business decision.
As a debtor company, you have 120 days after filing to propose to the court a plan for the repayment of your debts. Otherwise, the company’s creditors may file the plan instead. To get court approval of the plan, you must obtain the majority approval of various groups of creditors, such as secured creditors (mortgagees and others to whom you gave collateral) and unsecured creditors. Gaining sufficient approval requires some negotiation, but creditors often prefer accepting an extended payment period or reduced payments rather than forcing a debtor into liquidation. If a creditor objects to the plan, you or other creditors may ask the court to approve, or “cram down” the plan over that creditor’s objections.
Once the plan is approved, you must make the agreed-upon payments within the time period set out by the plan. While your company is in Chapter 11, you usually can remain in charge of operations as a “debtor in possession” under the supervision of a court-appointed trustee. After you have made all the payments, the court will discharge remaining debts and terminate the bankruptcy. As your attorney, we do everything we can to create a plan your business can manage, get the approval of creditors and guide you through to successful emergence from Chapter 11.
Gates Law Group, A Professional Corporation represents creditors and debtors in Chapter 11 bankruptcies. Please call 559-432-9944 or contact us online to schedule consultation. We serve clients from our main office in Fresno and locations in Paso Robles and Visalia.