A lot of the owners we talk to at Delancey Street are considering debt relief and bankruptcy, but they don’t have a clear idea what an attorney can do for them once they’re represented. To be clear, we are a business debt settlement company, not a law firm. When a bankruptcy is the better route for you, we recommend that our clients reach out to a vetted independent bankruptcy attorney. Subchapter V of Chapter 11 is a streamlined procedure to reorganize small and medium-size businesses. It looks different than Chapter 7 and regular Chapter 11 in important ways.
Setting up the Case
The first stages in the case will be the notice, the status conference (which is within 60 days), and the plan (due within 90 days). The first month is about setting up the case so all of that stuff can happen. Here are seven things that we think a good Chapter 11 lawyer should do in the first month.
The first is the election itself. For the most part, Subchapter V reorganization is filed on a form by the debtor, who elects Subchapter V treatment. In some instances, an existing Chapter 11 case can be converted to Subchapter V treatment.
Second, the attorney prepares the petition. The Subchapter V process begins with the debtor filing a petition (an official form) that includes basic information about the nature of the debt.
Third comes the creditor list. Attached to the petition are forms where the debtor lists all other creditors, the amount owed, and whether they are a secured or unsecured creditor. Creditors will first look at the petition to get an overall sense of the case and where the creditors stand in the case. Because creditors read the petition first, the attorney will need to prepare it carefully.
Fourth, the notice goes out. When a company files under subchapter V of chapter 11, creditors are sent a notice (Form 309F2 for corporations and partnerships; Form 309E2 for individuals). The notice tells the creditor to stop all collection efforts, and gives the name of the debtor, the jurisdiction where the case was filed, the trustee, and a deadline to file a proof of claim. The creditor must have filed the proof of claim by then to protect its right to be paid. For an owner who has spent months fielding calls from funders, that notice can be a sigh of relief.
Fifth, the attorney gets ready for the status conference. A status conference is scheduled within 60 days of the petition being filed (11 U.S.C. § 1188). No later than 14 days before the status conference, the debtor must file and serve a report regarding the efforts the debtor has made and will make to reach a consensual reorganization plan. A business bankruptcy attorney will pay a lot of attention to getting those big deadlines right.
Sixth, the attorney starts working toward agreement with creditors. The purpose of the status conference is to resolve the case as quickly and cost-effectively as possible; the court will likely discuss the process of creating a consensual plan with creditors. One of the purposes of Subchapter V is to reach a consensual plan. In our view, a good attorney should assemble a consensus among the creditors from the outset.
Building the Plan
Seventh, the attorney starts building the plan. It starts with understanding the business and how it was operating before problems started. After the order for relief, you as the debtor have 90 days to file a plan (11 U.S.C. § 1189(b)), unless the court extends the deadline. Also, remember: you and you alone can propose a plan. No third party, like one of your creditors, can file a competing plan. In contrast to a conventional Chapter 11, there is no “120 day exclusivity period” during which only you can file a plan, and after which your creditors may file a competing plan. Secured creditors who want to make an election under § 1111(b)(2) should review the status conference scheduling order to find out the time to make the election.
There is no need for formal disclosures as in a traditional Chapter 11, but the plan must include a brief history of business operations, a liquidation analysis, and projections of the debtor’s ability to make payments under the plan. It should show how the debtor plans to reorganize debt, pay off creditors, and continue the business. The history, the liquidation analysis and the projections of ability to pay the plan can only be written with the owner’s input. Once it is filed, the plan still needs to be confirmed. Creditors may object, for example, that the plan is not feasible or is likely to be followed by liquidation or further reorganization, or that creditors would not be receiving at least equal value with liquidation or that the liquidation analysis is inadequate.
Decide Between Settling Your Debts and Filing
So where does that leave you, if you are an owner trying to decide between settling your debts and filing? The primary service we offer is negotiating with merchant cash advance funders, lenders and other creditors on behalf of distressed business owners in need of debt assistance. This negotiation entails reaching a settlement for a portion of the borrower’s outstanding debt balance. We always give a first, free, confidential consultation to business owners. If it makes sense for an owner to go to bankruptcy instead of settling their debt then we will tell them so on the first call. If we determine they should go that route we will refer the owner to a vetted independent attorney who will work with the owner in an attorney-client relationship.
