Chapter 11-Part 4

Written by jessica Alba

Complicated and detailed, there is no way to cover all of the nuances of chapter 11 bankruptcy, even in 3 parts. In the next section, you will learn who can file a plan, avoidable transfers, cash restrictions, contesting your case, and claims. So, take a break, get a cup of coffee, and read on.

In a Timely Manner

As you have figured out by now, chapter 11 bankruptcy can be very complicated. A lot of rules and regulations must be waded through. Even if you have the services of a bankruptcy lawyer, the process can drag on for years. So, now there are limitations on the time you can take to create a repayment plan for your creditors. If you take too long, your creditors can also file repayments plans for the courts approval. Thus, it adds some incentive to get the job done. Sometimes, businesses will try anything to drag the process out, because it gives them more time to get all of their affairs in order, and come up with some sort of plan to save their business. But, efforts are now being made to make sure businesses do not abuse the court’s time and patience in the matter.

For some, this particular point in the law may be difficult to understand. In essence, if you have a piece of property or money that has been transferred to you in the last 90 days, you can give it back to the business from which it came. Then, you can use the freed up finances to pay the other creditors. On the other hand, if you got money or property from a friend or family member, you can basically give it back within a year of filing for bankruptcy, and use what you would be paying them back to work on paying other debts. Thank goodness there are bankruptcy lawyers that specialize in small and large business bankruptcies.

With Permission Please

Collateral is a big deal when you are a business filing chapter 11 bankruptcy. You cannot simply use assets, unless they are necessary for the normal operation of the business. In the event you actually have cash collateral, you will probably have to ask permission of the court to spend it. In other words, if you have cash available to spend, then you might be able to use it to pay your creditors back first. Remember, bankruptcy is not all about you and your needs. The court is also concerned about the people and businesses that are adversely affected by your financial troubles. For you, it simply means the opportunity to reorganize your debt into a manageable payment plan, so hopefully you can save your business and be as fair as possible to your creditors.

Adversary Proceedings

You, the business filing bankruptcy, are also known as the debtor in possession. As such, you can also file lawsuits to stop legal actions that will negatively affect your ability to satisfy creditors. Maybe it is a lien, a fraudulent action, or a post-petition transfer. Of course, not everyone is willing to take this course of action, for one reason or another. So, the law provides for forcing the debtor to do something.

According to www.uscourts.gov: “These proceedings are governed by Part VII of the Federal Rules of Bankruptcy Procedure. At times, a creditors' committee may be authorized by the bankruptcy court to pursue these actions against insiders of the debtor if the plan provides for the committee to do so or if the debtor has refused a demand to do so”. In addition, creditors can also file an adversary proceeding, if they feel another creditor has an unfair advantage over another. So, when filing bankruptcy for your business, it can get very complicated and convoluted.

Filing Claims

Creditors are the ones to file claims in a chapter 11 bankruptcy. Of course, they want to get their money for a product or service required. “The Bankruptcy Code defines a claim as: (1) a right to payment; (2) or a right to an equitable remedy for a failure of performance if the breach gives rise to a right to payment”.

In addition, you can file a claim against a debtor, if their filing adversely affects your business, because they failed to provide a product or service that you already paid for, and it is necessary to your operations. Bankruptcy is a big deal, and should not be taken lightly. The affects on others can be far reaching.

As you delve further into chapter 11 bankruptcy and the law, you will need to understand how it affects others who have a vested interest in your business, when chapter 11 is not the answer for you and your business, the purpose of a disclosure statement, and reorganization. In the next section, you will read only the basics of these concepts, so you can have an informed discussion with your bankruptcy lawyer.