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Chapter 11 Bankruptcy

Chapter 7 Bankruptcy

Chapter 11 Bankruptcy

Learn about Chapter 11 bankruptcy, the most common form of business bankruptcy. A Chapter 11 reorganization allows you to remain in business.

All "chapters" of bankruptcy can stop garnishments, harassing phone calls, collections, foreclosures and lawsuits. This is usually referred to as the "automatic stay". However, if you had a case dismissed within the past year, the "automatic stay" may not apply.

What is Chapter 11 Bankruptcy?

Companies that need to reorganize their debt over a period of time typically file Chapter 11. Technically, individuals and couples qualify, but personal filings are rare because of the expense and complexity.

Who typically files Chapter 11?

Companies that can identify specific problems such as purchase contracts or leases that need to be eliminated or renegotiated for business continuation. Companies that can pay current operating expenses, but are servicing substantial debt that is past due.

How does Chapter 11 work?

Upon filing, the Debtor is required to pay all on-going normal operating expenses. Old debt is temporarily put "on-hold". Monthly operating reports are filed with the Court to establish the company's ability to pay its expenses. The debtor then files a "disclosure statement" which details the history of the company, the facts that led to the filing and submits a plan of reorganization. Creditors are given an opportunity to review and vote on the plan. Creditor approval is not required, but it is preferred. Shortly after the Court approves the plan, the case is removed from direct Court supervision and the debtor continues its operations completing the plan of reorganization over time.

What is a Chapter 11 Plan?

The "Chapter 11" plan refers to the amount the company will pay to the creditors, the percentage each creditor will receive, the length of the payments and the cancellation of any purchase contracts or leases. The amount paid each month is based on the company's ability to pay, whether the debt is secured or unsecured and liquidation value of the company. Creditors vote to accept or reject the plan. Creating a viable plan is crucial to the company's long-term success and will require substantial analysis and consideration.

To find out if Chapter 11 is right for your business simply contact our office for an appointment.

Want to know more? Call 770-426-9359