Chapter 11 bankruptcy is typically used by businesses like American Airlines, General Motors and Lehman Brothers, which are all big businesses that have gone through very public bankruptcies in recent history. Individuals can also use Chapter 11 bankruptcy; however, it is prominently used by corporate entities.
Why File Chapter 11 Bankruptcy?
Like all other types of bankruptcy, one of the biggest advantages of Chapter 11 bankruptcy is that it provides the debtor with an automatic stay, which requires all creditors to stop any activity to collect debts, take possession of collateral or enforce liens and judgments against the company. This stay on creditor activity allows the debtor time to implement mechanisms to reorganize their debt without being harassed by creditors during the process.
Furthermore, Chapter 11 typically allows the debtor to maintain control and operation of the business as a “debtor in possession.” In other words, the debtor is in control of what happens to the business and its assets while continuing business operations under the oversight and jurisdiction of the bankruptcy court as the debt is reorganized.
What Happens Under Chapter 11 Bankruptcy?
Under Chapter 11, the debtor has 120 days to propose a plan to reorganize and pay the debt. If a plan is not proposed during this time, the debtor’s creditors will be allowed to propose a plan. If approved by the court, the plan proposed by the creditors will be imposed upon the debtor, whether the debtor approves of it or not.
Within the debtor’s proposed debt reorganization plan, the debtor is allowed to classify and prioritize creditors. Afterwards, certain classes of creditors will be allowed a chance to vote to approve or disapprove the plan. If the plan is sufficient, the creditor will approve and it will then be put before a judge of the bankruptcy court for confirmation.
However, in order for the debtor’s reorganization plan to be confirmed, it must meet the following criteria:
- The plan is proposed in good faith.
- The the creditors will be paid more than if the business were liquidated.
- Most tax liabilities will be settled within the duration of the proposed plan.
If the plan meets all of these requirements and is confirmed the judge, it becomes a new contract between the debtor and the creditors. As a result, it becomes binding on all creditors, whether they had the chance to vote on it or not.
What Are the Benefits to Filing Chapter 11 Bankruptcy?
Chapter 11 bankruptcy can be very complex, and it requires a certain amount of preparation from the debtor (and his or her attorney) prior to filing in terms of inventorying and accounting for assets. On the other hand, Chapter 11, which typically lasts for 5 years for an individual and can be even longer for a corporation or business, is a powerful mechanism for reducing the principal balance of secured debts, such as mortgages and liens on real estate, extending the maturity date and interest rates on loans and reducing the amount of unsecured debt a debtor owes to vendors or other unsecured creditors.
For more detailed information on how Chapter 11 bankruptcy can assist you in reorganizing your business debt, contact an experienced Oklahoma bankruptcy attorney.
Free Consultation: Oklahoma Bankruptcy Attorney
To find out more about how to successfully file bankruptcy in Oklahoma, contact a Oklahoma City bankruptcy attorney. For a free confidential consultation about your rights in bankruptcy court and the potential benefits of filing bankruptcy, contact the Debt Line Law Office at (405) 563-7888. If you prefer e-mail, send us your question using the form at the top right of this page and we’ll answer your question as soon as possible.