Chapter 11 Bankruptcy – Business Bankruptcy
Who is Chapter 11 Business Bankruptcy for?
Chapter 11 is designed with businesses in mind, specifically businesses whose expenses far exceed their income but want to continue operating (rather than sell everything) and pay creditors over time. This chapter can also be used by individuals under certain circumstances. This type of bankruptcy is usually referred to as a “reorganization” bankruptcy.
How does it work?
This type of bankruptcy can be started by the individual on behalf of the business (voluntary petition). However, this type of bankruptcy is entirely different from the commonly used chapter 7 and 13 in that creditors that meet certain requirements may also begin the proceedings (involuntary petition). Ultimately, a schedule of payments will be filed that outlines a way to pay off the business’ debts, usually in 5 years but it can be extended to 10 years under some circumstances. In this way a business’ debts may be reorganized to make it possible for it to continue operating. Something that many clients find very helpful is that while this proceeding is taking place, and while the payment plan is being followed, creditors cannot take action to collect or repossess. This means no more calls from creditors, final notice letters, new liens, or wage garnishments.
What information is required?
An individual or corporation should supply the law office with documents showing the items below (Note that additional information will be required and requested after a consult and retention):
- A list of all creditors and the amount owed to each one.
- The source, amount, and frequency of the business’ income.
- A list of all of the business’ property.
- A detailed list of the business’ monthly overhead and expenses.
It is helpful for the business or individual’s accountant to be involved in the preparation of financial information, balance sheets and profit and loss.