Delancey Street is not a law firm. We are a business debt settlement company and negotiate settlements with MCA funders, lenders and other business creditors for less than the full balance owed.
Sometimes, desperate owners of small businesses who are under significant debt pressure and questioning how to get out of debt call us and ask if they should just call a bankruptcy attorney. In some cases, Chapter 11 reorganization may be appropriate.
Know Before Hiring a Chapter 11 Attorney
It’s hard to know whether to file for reorganization or to proceed in some other manner. These are the seven things you should know before hiring a Chapter 11 attorney in Raleigh.
First, understand what Chapter 11 can do for you. Chapter 11 is a reorganization that gives a business an opportunity to get a break from creditors while it works on a plan to reorganize and emerge positioned to succeed. Businesses can obtain temporary relief from creditors who are trying to collect on debts through foreclosures, evictions, levies and lawsuits. This bankruptcy can provide emergency protection if the business needs immediate help. The business controls the sale of any assets that it chooses to liquidate and may be able to restructure the debt it owes by reducing the interest rate, extending the payment terms or decreasing the principal balances. Chapter 11 gives the business at least five years to pay off its business tax debts. Not only businesses can file Chapter 11 bankruptcy, but also single asset realty entities, nonprofit organizations and individuals who have a high amount of debt. It can be challenging to know when to file. A good Raleigh Chapter 11 lawyer will make sure to do a thorough review of your case, go over all of the options, and be honest about whether or not you should file for Chapter 11.
Second, devise an exit strategy. How will you reorganize the business? Do you need to liquidate any assets and, if so, how will you sell them? What portion of the business is not profitable and can you cut it out?
Third, ask whether your business can survive the process. Even if Chapter 11 provides protection from creditors, it will not protect you from the loss of customers, employees and vendors. Management should be able to handle the stress of running the business and going through bankruptcy at the same time. Capital (or access to capital) is another important factor. Look honestly at what you have, or can obtain, through ongoing operations, the sale of assets, debtor-in-possession (DIP) financing or cash collateral.
Fourth, be ready for scrutiny. Public scrutiny and court oversight is another concern when a business goes through bankruptcy. Officers, directors, and other insiders may be haunted by preferential payments or fraudulent conveyances. Once the petition is filed, the Bankruptcy Court must approve any compensation of executives.
Fifth, count the cost. The cost of filing can be significant. You will have to pay filing fees, quarterly court fees, and attorney fees (which may be paid before or after filing) that can range between $12,000 to $25,000. Some firms in Raleigh offer flat fee options. Would you be better off closing the business and opening a new one? If your business is a personal service company or requires minimal capital, then maybe.
Sixth, know what the process looks like. Though a Raleigh business’s Chapter 11 process can be an involved one, it also typically follows a standard framework. A Chapter 11 petition is filed with the court, and from that point on, the debtor is protected from creditors by an automatic stay. While a Raleigh business will continue to manage its finances and day-to-day operations, it will need court approval for any transactions outside the usual course of business. The business will disclose its assets, liabilities, income, expenses and recent financial transactions in great detail. Pre-bankruptcy bank accounts will be closed and new debtor-in-possession accounts opened. The debtor and its attorney will meet with representatives of the Bankruptcy Administrator’s office. Monthly operating reports and bank statements will be filed with the court throughout the period of the case, which will typically run from 5 to 12 months. Finally, the debtor will submit a Plan of Reorganization, which creditors will vote to accept or reject (or, in certain circumstances, the court may confirm despite objections). Once confirmed, the plan will be the new contract between the debtor and its creditors.
Seventh, check whether special rules apply to you. As a small business debtor, your Chapter 11 process will receive special treatment to help streamline and make the process more affordable. In order to qualify as a small business debtor, your total non-contingent, liquidated secured and unsecured debts must be $2,566,050 or less, and no creditors’ committee has been appointed (or the court finds the committee is not sufficient to provide oversight). As a small business, you will have some additional filing requirements, including your most recent federal tax returns, balance sheets, operations statements and cash flow statements. Finally, as a small business debtor, you will have a 180-day window in which to propose a plan before creditors can file competing plans (as opposed to the 120-day deadline for traditional Chapter 11 debtors). However, you must file a plan within 300 days unless an extension is granted (in traditional Chapter 11 cases, there is typically no deadline). In addition, a disclosure statement will not be required, which will save time and money.
Chapter 11 Is Not the “Magic Wand”
None of this is meant to scare you off. Chapter 11 demands real time and commitment, and a good attorney should walk you through what to expect so you can make informed choices along the way. What we tell the owners we talk to is that they need to think through whether a bankruptcy filing is going to be useful to help their business, and that Chapter 11 is not the “magic wand” that fixes all of a business’s problems.
Initial Consultation
If, upon consultation, we find your case is best dealt with in Chapter 11, we will tell you that on the first call and refer you to a bankruptcy attorney. If you are a candidate for debt settlement, we negotiate with your creditors on your behalf. The initial consultation is always free and confidential. No matter what, go in with your eyes wide open.
