Chapter 11 bankruptcy is frequently referred to as the “reorganization bankruptcy” because it is used by businesses to restructure their finances and work out a plan to repay their creditors while continuing to operate under the supervision of the bankruptcy court. Once a business or partnership files for Chapter 11 bankruptcy, its creditors are prohibited from taking action against the business.

With this form of bankruptcy, a business creates a reorganization plan that spells out how it will pay its financial obligations. It has up to four months after a petition date to propose a reorganization plan. The court may extend that to 18 months, after which the creditors can propose their own reorganization plan. Individuals with a substantial amount of money who do not qualify for Chapter 7 or Chapter 13 bankruptcy can file for Chapter 11 bankruptcy. However, it is primarily used by businesses, partnerships, and limited liability companies.

Restructuring Under Chapter 11 Bankruptcy

In a typical Chapter 11 bankruptcy, a business will make changes that reduce its expenses and free up assets. The business does not have complete control over those changes.

The bankruptcy court must approve proposed changes such as:

• The sale of real estate, inventory, or other assets
• Modifying vendor, licensing, or other contracts
• Shutting down or expanding business operations
• Financing that allows the business to borrow money

Court Confirmation Is Required

Creditors need to approve a reorganization plan in order to move forward. If any creditor does not approve the plan, the petitioning party can ask the court to force all debtors to accept the plan.

In these “cramdown” cases, the court must ensure that the plan meets two criteria:

• It is in the best interest of the creditors: The creditors must receive at least as much under a proposed plan as they would if the debtor’s case was filed as a Chapter 7 or converted to a Chapter 7 bankruptcy in which the debtor’s assets were liquidated.
• It is fair and equitable: A nonaccepting class of creditors cannot be compelled to accept less than full compensation while a more junior creditor or equity holder receives anything or retains its interest in the debtor under the plan.

The Roanoke Chapter 11 bankruptcy attorneys at Magee Goldstein Lasky & Sayers, PC understand what is necessary to gain court approval and will structure your plan to achieve those objectives.

Prompt Action Is Important

One of the most common mistakes both individuals and businesses make when contemplating bankruptcy is to postpone taking action. Delays only lead to further complications. We are ready to assist you in assessing your situation and recommending an effective course of action.

CALL (540) 343-9800 OR USE OUR ONLINE CONTACT FORM TO SCHEDULE A FREE CONSULTATION.