We’re Delancey Street, a business debt settlement company and not a law firm. If your business can’t keep up with your debts or make payments to your creditors, Chapter 11 bankruptcy may be an option. Many of the business owners we speak with have already heard this term. If you’re considering hiring a Chapter 11 attorney in Brooklyn, it can be helpful to understand what you’re getting into, so here are seven things you should know.
First, people tend to think of Chapter 11 as something for giant companies, but the truth is most Chapter 11 filings come from small or family-run businesses. It’s different from Chapter 7, which is a straight asset liquidation. In Chapter 11 the business stays open, gets its finances in order, reorganizes the company structure, renegotiates how and when it pays its debts, reduces other obligations, and (in an ideal scenario) starts making a profit again. Chapter 11 and Chapter 13 both involve proposing a reorganization plan to pay your creditors, which means they’re the opposite of Chapter 7, which is all about liquidating. Chapter 13 is what individuals file for, but Chapter 11 is what businesses are supposed to file for. Individuals can use Chapter 11 for debts they incurred while operating a business, such as a sole proprietorship. Reorganization is the only option in Chapter 13, but a Chapter 11 can culminate in selling off the business if reorganization is determined to be unfeasible.
Second, know how a case starts. When you go into Chapter 11, the first document filed is the petition. There are two kinds. If you are starting the bankruptcy, you file a voluntary petition. If your creditors have started the bankruptcy against you, you have received an involuntary petition. The petition has a list of assets, debts, income, and expenses, as well as a summary of your financial affairs. Once you file, the automatic stay goes into effect. The automatic stay means your creditors can’t continue any collection action against you or any of your property unless they first get permission from the bankruptcy court.
Third, expect to be questioned. Once you’ve filed for bankruptcy you’re going to have a meeting with a representative of the U.S. Trustee. They want some basic information and they want to make sure you know what you’re getting into. Then, 30 to 45 days after filing, there will be a public hearing where the debtor and its creditors will be present, and the creditors will be able to question the debtor about the contents of the petition. The owner needs to be prepared to answer questions about the numbers.
Fourth, the plan is the heart of the case. Once a business files bankruptcy, the debtor gets an “exclusive” period of 120 to 180 days. During that time, only the debtor can propose a reorganization plan. The plan describes how the business will reorganize its operations to become profitable, and it also proposes how the business will treat creditors. If the debtor doesn’t come up with a plan and get it accepted within that window, then anyone with an interest in the case can propose one. Creditors get to vote on the plan. If the debtor doesn’t get every creditor on board, it can try to force confirmation of the plan over their objections, also known as a “cramdown.” Otherwise, the court won’t confirm the plan without approval from all creditors. After you get confirmation, the debtor pays the creditors as the plan lays out. Usually, the case is over once the debtor has paid what’s owed to the unsecured creditors under the plan. At that point the debtor can ask the court to wipe out the remaining unsecured debts, which puts an end to any further collection attempts by those creditors.
Fifth, small businesses get some help. The court may refuse to appoint a creditors’ committee, which means your company might not have to pay for the lawyers and experts a committee would hire. You can also file your most recent balance sheet, statement of operations, cash flow statement and federal tax return with your petition. And you get a longer period of time during which only your company can propose a reorganization plan, not your creditors. All of this is overseen by the U.S. Trustee, a part of the Department of Justice, but the point is the process can be streamlined and you can spend less time, and therefore less money, in bankruptcy.
Sixth, ask how long it will take. There’s no easy answer because it depends on two things: the size of your business and the complexity of your finances. In the case of a small business, the court process may only take a few months, whereas with a large multinational corporation the process can easily stretch out for years. In the meantime, your reorganization plan may be proposed and amended several times until it is confirmed. If a plan cannot be confirmed, the court may determine that reorganization is no longer feasible and order the case converted to Chapter 7 or ended.
Seventh, Chapter 11 is a lot more expensive than other kinds of bankruptcy, because the debtor is required to come up with a plan that includes a projection of how the business will be profitable again, as well as a plan for paying back the debts. This usually means hiring lawyers, accountants, financial experts, and business experts, then negotiating with the creditors to get the plan approved. However, in many cases the legal and expert fees add up. Still, if you think you can turn the business profitable again, Chapter 11 may be worth it; it lets you keep an operating business after you get out of bankruptcy.
A Chapter 11 Lawyer’s Job
That cost is also why the attorney matters. A Chapter 11 lawyer’s job is to help you build a reorganization plan that the court and your creditors will accept, and that leaves your business standing. They make sure your financial statements, schedules and proposed plan meet the strict requirements of bankruptcy court. They negotiate with creditors to get the most favorable terms you can. And they help you stay in the driver’s seat, running your operations through the case. Chapter 11 isn’t something you should try to figure out on your own, because it demands serious legal knowledge and strategic thinking.
Business Debt Settlement Company
As for us: We are not a law firm. We’re a business debt settlement company. We negotiate with your merchant cash advance funders, lenders and other creditors to settle for less than the full balance. If bankruptcy makes more sense for you, we’ll tell you that and refer you to a vetted independent attorney; the attorney-client relationship is between you and that attorney. Your first consultation is free and confidential.
