Chapter 11-Part 2

Written by jessica Alba

If you are thinking about filing business bankruptcy under chapter 11, you know that the process requires a lot of paperwork, and it is definitely not an easy way out of your financial troubles. In part one you learned that it is vital that you have the professional counsel of a bankruptcy lawyer, you will have to attend credit counseling meetings, you will have to pay court costs, and a trustee will be put in charge of your case, to help distribute the payments, when you have a repayment plan in place. In part 2, you will learn some more basic concepts of chapter 11 bankruptcy, so you can make an informed decision about your financial future.

Debtor in Possession

Once you file for chapter 11 bankruptcy, you will have a new title. In the following court proceedings, you will be known as the debtor in possession. You will still have all of your assets. The point of chapter 11 is to retain all of your stuff, while you come up with a payment restructuring plan to pay off the debts. But, you will also have the responsibility of hiring anyone who can help with the bankruptcy. For example, you definitely need a lawyer, and should already have one. But, if you need accountants, appraisers or auctioneers, you will have to acquire their services. Yet, it will still be the trustee’s responsibility to make sure that you perform all of these duties according to the letter of the law.

Of course you know that the failure to comply will likely result in the dismissal of your case. In fact, it can also lead to criminal charges, if you have done anything to conceal the totality of your finances. Have you heard the expression: “ignorance is not excuse”? Well, when you come to federal bankruptcy court, you had better make sure you have done everything that the law requires-to the letter.

The Committee

Although personal bankruptcy has something similar as part of the process, even business owners have to meet with some of their creditors. In the case of larger businesses or corporations, a creditors committee will be established to make sure the debtor answers for the money owed. In other words, how did you run your business? Did you use sound business practices? Do you have good reason for owing creditors all of this money?

Usually, the creditors committee consists of the 7 creditors to whom you owe the most money. The committee is set up by the trustee. Do not take this meeting lightly. The creditors have the power to hire their own lawyer and investigators to make sure that you really have legitimate cause for filing chapter 11. Of course, their main interest will be to get the most they can in repayment. In fact, they will have to agree with the repayment plan. If it is felt that you have the ability to pay more, or have an alternative to bankruptcy they have the right to contest the judgment.

Allowances

If you are a small business debtor, allowances is in place to treat your case a little differently than a bigger business or corporation. For example, the trustee might not find enough people to sit on a creditors committee. In fact, the trustee will likely need to take a more hands on approach to your case. Of course, there are specific criteria for qualification under this category of debtor. Rather than try to get it right in layman’s terms, here is a quote from www.uscourts.gov:

Determination of whether a debtor is a "small business debtor" requires application of a two-part test. First, the debtor must be engaged in commercial or business activities (other than primarily owning or operating real property) with total non-contingent liquidated secured and unsecured debts of $2,190,000 or less. Second, the debtor's case must be one in which the U.S. trustee has not appointed a creditors' committee, or the court has determined the creditors' committee is insufficiently active and representative to provide oversight of the debtor.

Lest you doubt, sites ending in .gov are government sites. So, the information found has to be verifiable and accurate. Unlike a .com or .us site, it is not just some information disseminated by a individual or group. Especially if it is legal information, you need to know that it is something you can trust.

Anyway, you will still have to provide all of the necessary financial information, like your cash flow, a balance sheet, a statement of operations, and your most recent tax returns. If any of these documents are unavailable, you should have a good reason, in writing, why not.

In part 3 of filing business bankruptcy, you will learn more about filing chapter 11 bankruptcy. For example, there may be a case for a specially appointed trustee, and an explanation for the differences for a real estate debtor, and more. Again, do not assume these articles are any replacement for sound legal counsel. Even though there is a lot of information, it is only the basics of what you will encounter, if you file chapter 11.