For example, if you own residential real estate and you owe $3 million in mortgages on these properties, but the properties are now only worth $1.5 million, Chapter 11 bankruptcy can allow you to reduce your existing mortgages on these properties to their market value of 1.5 million, which can still be paid off over 20, 30 or even 40 years, whatever the existing term of the mortgages may be.
The other $1.5 million that was deducted from the value of your mortgages now becomes unsecured debt, of which you will propose to pay some portion (perhaps only several thousand dollars) within your proposed debt reorganization plan.
So in effect, Chapter 11 can allow you to keep your real estate while reducing how much you owe, which can be a huge benefit to any debt-laden business or individual.
That being said, Chapter 11 reorganization can be extremely complex, and there are several things that you and your attorney should do prior to filing in order for you to be successful in reorganizing your debt under Chapter 11.
Before You File Chapter 11 bankruptcy
First of all, before you file Chapter 11 bankruptcy, you should ask yourself the following questions:
- Is my business worth saving?
- Does my business have enough cash flow to be profitable?
- Will a reduction in my debt actually help my business to survive?
If your business does not generate enough income, it will be extremely difficult to get any Chapter 11 bankruptcy plan approved.
Next, you will need to have good accounting records of all of your assets, properties, income and expenses before you file. You will typically need to have the following ready:
- A balance sheet
- An income statement
- 3 years of income taxes
- Appraisals of all properties
- Your insurance policies
- Records of all your payments to utilities, vendors etc.
You will also need a profit and loss statement for the last calendar year, and monthly profit and loss statements for each month of the current year. You will need all of these things to prove to your creditors and the court that you have the income to complete a proposed debt reorganization plan.
During Chapter 11 Bankruptcy
During your bankruptcy, you will be required to submit monthly operating reports for the duration of your reorganization plan, which is usually 60 months for individuals but can be longer for businesses. Furthermore, during this time, your financial records, including your personal finances if you are an individual, will be open to the bankruptcy trustee and court.
In addition, the court will need to approve all of your expenses before you can spend a dime. This is typically handled soon after you file Chapter 11 by filing a motion asking the court to allow you to continue paying your monthly expenses. Until this approval is granted, you are not to spend any of the income that you or your business generates for any utilities, mortgage payments or any other expenses.
What Happens Under Chapter 11 Reorganization?
Under Chapter 11 bankruptcy, you will continue to operate your business as a ‘debtor in possession.’ During this time, all creditor action is stayed and you will be allowed approximately 120 days to propose a plan to restructure your debt, within which you will classify and prioritize your creditors.
What makes Chapter 11 bankruptcy different from other types of bankruptcy is that your creditors will be much more involved in your bankruptcy. Getting your reorganization plan approved will be more of a negotiation between you and your creditors, as certain classes of creditors will be allowed to vote on accepting your proposed debt reorganization and to recommend changes.
Ultimately, in order for your reorganization plan to become a binding agreement between you and your creditors, it must be confirmed by the bankruptcy court. However, in most cases, there will be no confirmation from the court without the approval of your creditors.
Thus, since the success of your bankruptcy hinges on your creditors approving your reorganization plan, it is extremely important for you and your lawyer to convince them that your business is worth more as an ongoing concern with reorganized debt than if it were liquidated to pay off the debt.
Conclusion
Debt reorganization under Chapter 11 can be extremely complex, but it can help reduce the amount of debt you or your business owe and allow you to continue to operate as an ongoing concern. However, if you are a business owner in need of reorganizing your debt in order to save your business, you will need the skills of an experienced bankruptcy attorney to help you prepare the necessary documents to convince the court and your creditors to accept your reorganization plan.
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.