- posted: Feb. 28, 2023
When businesses or individuals face serious financial hardship, they have several options when it comes to filing for bankruptcy. Among those options is Chapter 11, also known as reorganization bankruptcy.
Chapter 11 is a type of bankruptcy that allows debts to be restructured and repaid over a long period of time. Both individuals and organizations may file for it, but the vast majority of Chapter 11 filings are businesses.
For businesses, filing for reorganization bankruptcy allows them to continue operating while under the supervision of the bankruptcy court. As the name suggests, a fundamental component of every Chapter 11 case is the reorganization plan. This is the court-approved document detailing which creditors will be repaid, the amounts to be paid and the timing of all payments. The debtor proposes a plan and the creditors then have an opportunity to respond to the proposal. This phase of the filing process can be time-consuming and contentious as debtors and the creditors seek to come to an agreement on an acceptable repayment plan. Ultimately the bankruptcy judge will decide whether to reject, approve or modify the proposed Chapter 11 plan.
A Chapter 11 plan usually spans a period of many years. During this time the business will make payments to creditors using funds generated from continuing operations or the sale of existing assets. Execution of the plan is overseen by a bankruptcy trustee, who is well-versed in all aspects of business bankruptcy and reports directly to the bankruptcy court.
Once the company repays the debts in accordance with their reorganization plan, it is then free of bankruptcy limitations and court supervision and can continue operations as normal without reporting to the trustee.
Not every Chapter 11 case is successful, however. Companies that do not meet the obligations set forth in the plan, whether due to worsening economic conditions, financing commitments falling through or key employees leaving the company, can move to have their Chapter 11 filing converted to a Chapter 7 filing. Then they must shut down and liquidate their assets in order to pay creditors some of the past obligations.
The Small Business Reorganization Act (SBRA) went into effect on February 19, 2020. This Act
streamlined the bankruptcy process for small businesses. Several of the rules applicable to the regular
Chapter 11 bankruptcy are eliminated under this Act, making it preferable for those businesses that
Rapid City-based Anker Law Group, P.C handles Chapter 11 bankruptcy filings for businesses who are looking for a fresh financial start. If you or your business is struggling under a heavy debt load, feel free to contact us online or call 605-519-5967 for an initial consultation.