ALL YOU NEED TO

KNOW ABOUT CHAPTER

11 BANKRUPTCY

By Suzzanne Uhland

Image courtesy of

Ralph Daily

at Flickr.com

Bankruptcy in the United States is governed under the United States Constitution, which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress codified Bankruptcy in Title 11 of the United States Code and is commonly referred to as the "Bankruptcy Code". Some law relevant to bankruptcy is found in other parts of the United States Code. For example, bankruptcy crimes are found in Title 18 of the United States Code. Tax implications of bankruptcy are found in Title 26 of the United States Code, and the creation and jurisdiction of bankruptcy courts are found in Title 28 of the United States Code. While bankruptcy cases are filed in United States Bankruptcy Court, and federal law governs procedure in bankruptcy cases, state laws are often applied when determining property rights. For example, law governing the validity of liens or rules protecting certain property from creditors, may derive from state law or federal law. Because state law plays a major role in many bankruptcy cases, it is often unwise to generalize some bankruptcy issues across state lines.

Bankruptcy in General

If you are deciding between chapter 7 or 11 in the Bankruptcy Code,

you can review this information Suzzanne Uhland presents in this

article:

http://www.slideshare.net/suzzanneuhland/how-to-decide-if-7-or-11-is-

the-right-bankruptcy-choice

Bankruptcy in General

Image courtesy of

Chris Potter at

Flickr.com

This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11. Chapter 11 is frequently known as the reorganization chapter of the bankruptcy code because it allows a debtor to reorganize financial obligations while retaining assets, generally through the sale of certain assets to pay down debt and refinance existing debts.

It grants a debtor what is known as an automatic stay from the enforcement actions of creditors. This precludes creditors from continuing collection efforts, from bringing a lawsuit, or from filing liens against property or foreclosing on property. In Chapter 11, a debtor generally remains in control of their estate. A trustee may be appointed for causes like fraud, dishonesty, incompetence or gross mismanagement, or if such appointment is in the best interest of creditors.

Chapter 11 of the Bankruptcy Code

A plan of reorganization provides debtors with important

tools for rearranging financial affairs. A debtor may also

refinance existing loans including increasing the time in

which it must be repaid, decreasing the interest rate if

interest rates have declined since the loan was entered

into, or changing/removing other arduous terms. Through

Chapter 11, as with other bankruptcy chapters, a debtor

can also sell an asset free and clear of all liens. The ability

to sell an asset free and clear of liens can garner a greater

sale price as purchasers are assured that the property is

unencumbered and the purchaser is subject to less liability.

Chapter 11 of the Bankruptcy Code

Either the debtor or its creditors may file a petition for Chapter

11 bankruptcy protection, the latter route referred to as an

involuntary petition. Once the petition is filed with the U.S.

Bankruptcy Court, the case begins and an automatic stay of all

collections actions is put into effect. This means creditors may

not pursue existing or new collection activities for unpaid debts

unless the court issues a modification to the stay. This provides

an opportunity for the debtor to draft a reorganization plan and

negotiate more feasible repayment terms without worrying about

its debt obligations. After the petition is filed, the business

continues about its affairs without interruption. Meanwhile,

under the supervision of the bankruptcy court, the debtor turns

its attention to figuring out a repayment plan for its creditors. As

with other types of bankruptcy, repayment amounts typically are

much lower than the original debt totals.

Process of Filing a Petition

Each class of creditors are entitled to vote to accept or reject your

proposed treatment of them in your bankruptcy plan. After the initial

hearings, the court will authorize you to start soliciting votes. Ideally,

you get a vote of acceptance from every creditor and the judge

approves the plan on this basis. You will likely have to negotiate

various terms of treatment with the individual creditor to obtain

acceptance so be prepared to compromise. In the event you have a

creditor who rejects the plan, the creditor’s non-acceptance may be a

major impediment to court approval of your plan. If all negotiations fail,

you will have to ask the judge to approve your case over the objection

of the non-accepting creditor. As long as you successfully negotiate the

treatment of each participating creditor in your bankruptcy, you should

be able to restructure your individual or business debt in a way that

allows you to emerge from bankruptcy lean and profitable.

For more information about Bankruptcy Suzzanne Uhland suggests:

http://www.uscourts.gov/services-forms/bankruptcy

Succeeding in Chapter 11

Bankruptcy