As a bankruptcy law firm, a question we are frequently faced with is how the process works and how a Chapter 7 is different from a Chapter 13 and when it is appropriate to file for a Chapter 11. When it comes to a Chapter 11 bankruptcy, it is important to understand that a Chapter 11 is specifically designed to be a reorganization tool that allows businesses, including small businesses, a way to restructure their debts and restructure their business operations that will allow them to emerge a more viable and stronger entity. It is also used as a way to efficiently and rationally cease operations or maximize asset value. When it comes to the differences between the three, it is important to note that Chapter 11 is an option for individuals or businesses that simply cannot qualify for Chapter 13 because they have too much debt. They also cannot qualify for Chapter 7 because it is not appropriate in this particular situation. With that being said, it is important for a business or individual to understand how the process works and what exactly is involved when you file a bankruptcy.
The process of a Chapter 11 bankruptcy commences when you file Chapter 11 bankruptcy forms, which are the same forms typically used for a Chapter 7 bankruptcy and also a Chapter 13 bankruptcy. One important thing to note is that when you file a Chapter 11 bankruptcy, your business will be allowed to operate in most of the ordinary way that it normally would. However, there is one big exception. When you are going through a Chapter 11 bankruptcy, while your business may operate in its normal manner, it cannot make the same free financial decisions that you would make when it was not in the process of a Chapter 11 bankruptcy. In order to release money from your bank account, for example, you will need to get the judge to sign off on it, which will allow you to make the payments from your bank account. Similarly, if it is your intention to pay employees or contractors for work that has been done before you file a Chapter 11, you will need to get the judge to release those funds in order to make those payments. Typically, what results when you file a Chapter 11 case is that an attorney from your bankruptcy law firm will appear before the judge on the very first day of the court case so the judge can enter what are known as first day orders. These first day orders allow you to make certain financial decisions and pay key individuals. Naturally, the attorney representing you from a bankruptcy law firm will need to know what financial decisions need to be made, who needs to get paid, and what outstanding current debts you may have that directly influence the day-to-day operating of the business.
The next step is typically having an initial meeting of creditors, which takes place within four to six weeks after the bankruptcy has been commenced. In that initial meeting, unsecured creditors will have an opportunity to form a committee of creditors and hire the professionals they need, including bankruptcy lawyers, to get them paid from the company involved in bankruptcy. Once we have a bankruptcy plan that has been proposed and filed, the creditors have the right to vote for or against the plan. As your bankruptcy law firm, it is important for us to get your bankruptcy plan approved and get the bankruptcy judge to sign off on it so that you can regain control of your finances.
How We Can Help You
The focus of our practice is in filing Chapter 7 and Chapter 13 bankruptcies for individuals and couples. Very often, those filing a business bankruptcy also need to file a personal one. If you do, we encourage you to call our office and schedule a consultation to discuss all of your options since one may impact the other.