Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 11 Bankruptcy?”
Many people have heard about and may even be familiar with Chapter 7 and Chapter 13 bankruptcies. These two chapters are used by individuals who are in debt and looking for a way to start fresh, either through liquidation (Chapter 7) or reorganization (Chapter 13). But what about Chapter 11? To find out more about Chapter 11 bankruptcies, keep reading.
First things first, a Chapter 11 is a lot like a Chapter 13 bankruptcy in that it allows for the restructuring or reorganization of debt. The difference between Chapter 11 and Chapter 13 is that it is typically reserved for businesses, rather than individuals. Though companies can also file Chapter 7, the downside is that they would need to liquidate their assets. Under a Chapter 11, they can keep their assets while restructuring debt, giving them a chance to keep the company running while making the debt load more manageable.
How much does filing a Chapter 11 bankruptcy cost?
Bankruptcy, unfortunately, costs money. In the case of Chapter 11, the filing fee is nearly $2,000. Beyond the filing fee, those interested in a Chapter 11 will need to pay for attorney’s fees. Chapter 11 bankruptcies, given their corporate and complicated nature, are usually much more expensive than a typical personal filing. According to experts at Forbes, attorney’s fees in a Chapter 11 can often run about 4% of a company’s annual revenue.
What is the best interests test?
When a company files for Chapter 11, they must understand that the usual nature of running the business will change while the bankruptcy is ongoing. Major business decisions will need to be run past the bankruptcy court, ensuring that the company doesn’t jeopardize the best interests its of creditors. Creditors are allowed to have input into this process and can express their opinion on a future plan to allow the company to restructure its debt.
Before the restructuring plan becomes official, it must first pass a best interests analysis. Under this best interests test, the court must be convinced that creditors get as much money from the Chapter 11 as they would if the debtor filed for a Chapter 7. The reason for the test is that Chapter 11 was a tool created by Congress to allow businesses to continue operating. Business were incentivized to go along with this because it was shown that continued operation could result in higher payouts than if the company were simply liquidated. In short, this best interests test proves that the company is worth more alive than dead.
How long until a Chapter 11 case is closed?
If speed is the only factor, Chapter 7 is almost always the way to go, with these liquidation cases often wrapped up in a matter of months. If you’re interested in taking a longer route involving reorganization, be prepared for Chapter 11 cases to last much longer, often between 6 months and two years.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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