Ask a bankruptcy lawyer how long a Chapter 11 case takes and the lawyer will probably say, “It all depends.” There is no neat answer for this simple question, but I can give you a general answer. If you’re represented by an experienced Chapter 11 lawyer, you should expect a successful case to take 6 months to a year. There are, however, some situations where cases can take longer. The length of time it takes to go through the bankruptcy system can vary with each case, and a lot of it depends on whether the debtor has a plan of reorganization which is acceptable to its creditors.
The Case Begins When a Petition Is Filed
To see why, it helps to walk through a case from the day it’s filed. Chapter 11 is a process that gives a struggling business the chance to try to save itself. Most Chapter 11 cases are started under the main process, but individuals and some small businesses may qualify for a different procedure. The case begins when a petition is filed in a federal bankruptcy court in the area where the debtor has a domicile, residence, or principal place of business. The petition comes with various official forms, detailed schedules, and other information. The company fills them out with as much detail as it can muster up.
Filing for bankruptcy brings with it an automatic stay, which legally stops most creditors from making collection calls, suing, evicting, foreclosing on, or taking other actions to seize a debtor’s property. A debtor is known as a “debtor in possession” during bankruptcy, meaning they retain control of their assets and the ability to run their business. The stay buys time for the company to try to get back on its feet.
The clock on the case starts as soon as the petition is filed. Certain motions have to be filed with the petition, or as soon after as possible, asking the court for the orders you need to keep running your business.
Within 14 days of filing the petition, the Office of the U.S. Trustee may decide to create a creditors’ committee. The committee acts on behalf of all unsecured creditors, and usually meets with the debtor within 30 to 60 days of the filing to discuss issues related to the case. That first meeting with the creditors committee is an opportunity for the creditors to grill the debtor on its financial situation. It gives the debtor an opportunity to explain how it plans to sort out its finances.
You Submit a Reorganization Plan to Your Creditors
Then comes the heart of the whole thing: the plan. Within 90 to 120 days after filing (depending on the type of case), you submit a reorganization plan to your creditors. This is the centerpiece of your case. Your plan proposes repayment terms for all your business debts over a specific period, usually three to five years. It is an offer for the creditors to accept.
Filing the plan doesn’t end anything, though. Once it’s on the table, the debtor and its creditors go back and forth, negotiating and negotiating until everyone agrees on the terms. Sometimes that takes time. Sometimes it doesn’t. As with any negotiation, one side makes an offer, and the other side comes back with a counteroffer. The plan may be altered in the process. The ideal goal is to come up with a plan the creditors will sign off on. Once they agree, the plan is presented to the bankruptcy court for review and confirmation. Once the plan is confirmed, the debtor must carry it out and implement the restructuring. And the debtor can actually emerge from Chapter 11 a stronger business, with debt levels reduced and a new lease on life.
This Is the Main Reason Cases Can Take Longer
That’s the smooth version. What if you haven’t come up with a plan that creditors will accept? You can ask the court for an extension up to 18 months from the filing date. If a creditor objects or you can’t agree on a plan, you may need even more extensions. This is the main reason cases can take longer than the typical 6 months to a year. The company can try to modify the plan or come up with a new one. It may have to go back to the drawing board. And it takes time for the company and creditors to negotiate. While one debtor might emerge from Chapter 11 in just nine months, another can be tied up in court for a few years.
If you aren’t able to negotiate a plan, your case may drag on for years. Or the petition could be considered unsuccessful: the court may dismiss the case or convert it to Chapter 7.
That’s why the people you bring in matter so much. An experienced Chapter 11 attorney is essential to a successful restructuring. Every step in the case (from the petition to the plan to dealing with the creditors) requires familiarity with the law and process, as well as business operations, finance and debt. A lawyer can’t guarantee your success, but you can be confident that your case won’t fall apart because of a legal mistake. A great deal can go wrong and the proper people and proper steps are needed to bring the process successfully to an end.
So, back to the question. If you’re a business owner weighing Chapter 11, you should know there’s no one-size-fits-all answer, depending on how complicated the business is, and how long it takes to reach agreement with creditors. And that can make the duration of the process open-ended. If things go well, plan on six months to a year. You have to be patient and plan for the unexpected. Successful business reorganizations require patience, respect and an enormous helping of good will on the part of all the players in this process.
