Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
Business owners throughout the United States take great pride in their businesses, and will often do everything they can to make their business a success. Unfortunately, for many, there comes a time when their business does not perform as expected, and those business owners will often find themselves in debt as a result. Fortunately, even if your business is currently in debt, you may still have several options. One of those options is filing for Chapter 11 business bankruptcy. Though this may sound like a huge step, the truth is, this may be your best option going forward.
Essentially, Chapter 11 business bankruptcy will allow you to restructure your debt on a timeline your own plan sets, rather than over a fixed five-year period, while allowing you to keep your doors open, your business running, and your employees on staff. Furthermore, the second you file Chapter 11 business bankruptcy, all creditors will be prohibited from further collection activities, and the court can authorize you to borrow new money to fund operations even though your existing credit lines may not survive the filing. As long as everything works out, your business should become profitable once more. Please continue reading and speak with our knowledgeable Rockland County bankruptcy attorney to learn more about how our firm can help. Here are some of the questions you may have:
What Happens When I File for Chapter 11 Business Bankruptcy?
The first step is hiring an attorney who will file a Bankruptcy Petition. This Petition contains a list of your business’s assets and liabilities, a financial statement, and a list of any outstanding contracts or leases. This will trigger an Automatic Stay, prohibiting all collection activities.
341 Meeting of Creditors
Once you have filed your bankruptcy petition, you will then need to attend the 341 Meeting of Creditors, where you will be questioned under oath by the U.S. trustee and your creditors. Questions may regard your business, assets, and how your case is being handled.
Liquidation Analysis
As long as the Bankruptcy Court approves your plan, the creditors vote in your favor, your business meets the standard of the Liquidation Analysis, and it is determined that Chapter 11 is in your best interest, you should be approved. The Liquidation Analysis, in a nutshell, is conducted to ensure that with the payment, your creditors will receive a better, though minimal payment of the debt owed to them, on the condition that your company can remain open. This is because in most cases, creditors would rather receive at least a portion of the debt owed to them as opposed to having your business go under and them receiving no payment.
Who Runs the Business During a Chapter 11 Filing?
You will remain in control of your business during the case, as the moment you file, your business assumes the identity of “debtor in possession.” Essentially, this means you will retain control and ownership of the business and its assets without a trustee taking over. The appointment of a trustee is rare, and generally only happens if the court finds fraud or gross mismanagement.
The Duties That Come With Staying in Control
Remaining in possession makes you a fiduciary with the rights and powers of a trustee. In practice, this means accounting for assets, reviewing and objecting to creditor claims, filing monthly operating reports, and obtaining court approval before hiring professionals like attorneys, appraisers, or accountants. Selling or utilizing property outside of your standard business action also requires permission.
The Quarterly Fee to Consider
A debtor in possession owes a quarterly fee to the U.S. trustee for every quarter the case remains open, scaled to how much money the business disburses that quarter. It ranges from $325 to $30,000. For a smaller business, this ongoing cost is one reason to ask whether Subchapter 5, the streamlined small business track inside Chapter 11, is the better fit.
Who Gets to Propose the Plan?
For the first 120 days after filing, you are the only person who can propose the plan. However, this exclusivity period may be extended by the court, up to 18 months. Once it has lapsed, a creditor or case trustee may file a competing plan.
Before creditors take a vote, you must also file a disclosure statement approved by the court, which provides them with enough information to fairly judge your plan. A class of creditors accepts when holders of at least two-thirds in amount and more than half in number vote yes. Confirmation requires at least one impaired class to accept.
Contact Our Experienced New York Firm Today
The Law Offices of Allen A. Kolber, Esq. effectively represent clients facing Bankruptcy in Rockland County and all of New York State. Our firm understands the stress one can feel when facing a difficult financial future. Our compassionate staff will work to ease your fears and help you make a new start. If you need quality legal support, contact The Law Offices of Allen A. Kolber, Esq.
