Chapter 11 bankruptcy is typically used by financially strapped businesses trying to reorganize their financial affairs. However, it is available to individuals, oftentimes when they have debts that exceed one or both of the Chapter 13 debt limits. Another situation in which an individual might want to use Chapter 11 is if he or she possesses a significant amount of nonexempt assets, such as several real estate properties.
In the case of business owners, the main reason to file Chapter 11 is because it allows a business to continue to operate while management works on a plan to restructure debt. When a business files Chapter 11, an “automatic stay” is invoked, requiring the business’ creditors to halt collections activities. It is important to note that if creditors can convince the Court that their best interests would be served by converting the Chapter 11 to a Chapter 7 bankruptcy, liquidation of the business could occur. Additionally, liquidation can be proposed as part of a Chapter 11 bankruptcy if management believes that greater value will be created by breaking up the existing business divisions. Surprisingly enough, Chapter 11 actually provides a business with more liquidation options than a Chapter 7 bankruptcy.
Generally, the Court will confirm a Chapter 11 bankruptcy if the business reorganization:
- Is determined to be feasible
- Is proposed in “good faith”
- Complies with all Bankruptcy Code provisions
If the reorganization plan is confirmed and properly enacted, all the debt incurred by the business in question before the confirmation date is typically discharged.
Chapter 11 bankruptcy is extremely complicated. This is why we have used words such as typically, generally, might, and can in the above description. We’re not out to confuse you; we just want you to know that every situation is unique. For the best possible outcome, you owe it to yourself and your business to have an experienced Riverside CA Chapter 11 bankruptcy attorney working by your side. Contact us today to discuss your situation and learn how we can help you through this difficult process.