What is Chapter 11 Bankruptcy?

Explore Chapter 11 Bankruptcy Solutions with The Dakota Bankruptcy Firm

Chapter 11 bankruptcy is a form of “reorganization” bankruptcy that allows you to restructure your debts and assets so you can pay everything off while still running your business. More specifically, the reorganization plan in Chapter 11 will allow you to delineate how certain debts will be handled. Your creditors will either accept or reject your reorganization plan. If a creditor objects to the plan, the court will decide whether to confirm the plan based on the following criteria:

• It is feasible or likely to succeed – the debtor must prove they can raise sufficient funds to pay their creditors and cover expenses.
• It was proposed in good faith – the debtor does not have ulterior motives for pursuing bankruptcy.
• It meets the best interests of the creditors – this "best interests" test requires either (1) the creditors receive at least as much as they would if the case were converted to Chapter 7, where your property would be liquidated to pay them back; or (2) you pay all your creditors nearly in full. 
• The plan is "fair and equitable" – the "fair and equitable" test considers whether the secured creditors will be paid, over time, at least the value of their collateral and that you not retain any equity interests unless all obligations are paid in full.

The reorganization plan can be one of the more confusing and complex steps as it involves drafting a detailed plan of action subject to your creditors’ objections, so it is best to consult an experienced Chapter 11 lawyer to make sure you have a strong plan that meets your interests as much as it meets your creditors’ approval.

Unlike Chapter 7, which involves liquidating assets, Chapter 11 focuses on creating a plan to repay creditors over time.

Key Features of Chapter 11 Bankruptcy

• Debt Restructuring: Renegotiate terms with creditors to lower payments or extend repayment periods.
• Automatic Stay: Stop creditor collection actions, including lawsuits and foreclosures, immediately upon filing.
• Continued Operations: Businesses can continue operating while implementing a repayment plan.
• Asset Protection: Retain critical assets needed for operations or personal use.

Who Can File for Chapter 11 Bankruptcy?

Chapter 11 is primarily designed for businesses but is also an option for individuals with complex financial situations.

Businesses

• Corporations
• Partnerships
• Sole Proprietorships

Individuals

Individuals with significant debts and assets that exceed the limits of Chapter 13 bankruptcy may choose Chapter 11 to address their financial challenges while retaining control over their property.

Chapter 11 Bankruptcy: A Guide for Businesses

Chapter 11 works in different ways for businesses vs. individuals. During the Chapter 11 process for businesses, your business may continue operating, either under your direction or under the direction of a court-appointed trustee. Note that while your business may still operate, you must obtain the bankruptcy court’s approval for the following actions:

• entering or terminating a lease;
• closing down or expanding your operations;
• selling any assets like real property;
• establishing mortgage or other financing arrangements that allow you to borrow money;
• entering or modifying union, vendor, licensing, and other agreements; and
• retaining and paying fees to attorneys and other professionals.

Subchapter V of Chapter 11 is a simplified process for small businesses whose debts do not exceed 2.75 million and of which at least 50% were accumulated due to business activities. Subchapter V can require creditors to accept court-approved repayment plans of 3-5 years (rather than having the process drag on with rejections of the plan). It also allows debtors to let go of some of their unsecured debt that has no collateral (e.g., credit card debt).

Understanding Chapter 11 for Individual Debtors

While Chapter 11 is often discussed in the context of businesses, certain individuals may also elect to file Chapter 11. In general, Chapter 7 and Chapter 13 are more viable options for individual debtors. However, you might want to pursue Chapter 11 in the following scenarios:

• your unsecured debts exceed the Chapter 13 debt ceiling of $360,475; or
• you want to rewrite your real estate investment mortgages (Chapter 11 allows you to reduce the principal mortgage balance to the current value of the property and can also help you reduce your monthly mortgage payment amount).

Chapter 11 is one of the lengthier bankruptcy processes and requires careful attention to detail during the reorganization plan proposal. The Dakota Bankruptcy Firm can help you navigate the filing process, as well as help you determine whether Chapter 11 is the best option for you as a business or as an individual debtor.

Why Choose The Dakota Bankruptcy Firm?

Filing for Chapter 11 bankruptcy is a complex process requiring in-depth legal knowledge and negotiation skills. Our team at The Dakota Bankruptcy Firm provides:

1. Experienced Legal Guidance

We have extensive experience handling Chapter 11 cases for businesses and individuals in Fargo.

2. Customized Strategies

Every financial situation is unique. We craft tailored strategies that align with your goals.

3. Skilled Negotiation

We negotiate with creditors to secure the most favorable repayment terms.

4. Comprehensive Support

From initial filing to plan confirmation, we’re with you every step of the way.

5. Local Expertise

Based in Fargo, we understand the local economy and business landscape, giving us an edge in representing our clients effectively.

Contact The Dakota Bankruptcy Firm Today

If you or your business is facing financial difficulties, Chapter 11 bankruptcy may be the solution you need to regain stability and protect your assets. At The Dakota Bankruptcy Firm, we provide trusted, knowledgeable representation tailored to your unique circumstances.

Need Chapter 11 Bankruptcy Guidance? Contact The Dakota Bankruptcy Firm Today online or call (701) 394-3215 for a Chapter 11 lawyer near you. 

FAQs About Chapter 11 Bankruptcy

1. What is the difference between Chapter 11 and Chapter 7 bankruptcy?

Chapter 11 focuses on reorganizing debts and creating a repayment plan, allowing businesses to continue operating. Chapter 7 involves liquidating assets to repay creditors and is typically used when restructuring isn’t feasible.

2. How long does the Chapter 11 process take?

The timeline varies depending on the complexity of the case, but it generally takes several months to a few years from filing to the completion of the reorganization plan.

3. Can small businesses file for Chapter 11 bankruptcy?

Yes. Small businesses can file under a streamlined version of Chapter 11 known as Subchapter V, which simplifies the process and reduces costs.

4. What happens if creditors don’t approve the reorganization plan?

If creditors reject the plan, the court may still approve it under certain conditions, known as a cramdown, if it meets legal requirements and is in creditors’ best interests.

5. Will Chapter 11 bankruptcy affect my credit?

Yes, filing for bankruptcy impacts your credit. However, it provides an opportunity to restructure your finances and eventually rebuild your credit.

6. Can individuals file for Chapter 11 bankruptcy?

Yes, high-net-worth individuals or those whose debt exceeds the limits of Chapter 13 bankruptcy can file for Chapter 11.

7. Do I lose control of my business during Chapter 11?

Typically, business owners retain control of their operations under a status known as debtor in possession, though the court oversees major decisions.