Bankruptcy Reorganization (Ch 11 & Ch 12)
Chapter 11 bankruptcy is a very customizable form of bankruptcy reorganization available to individuals, corporations and partnerships. Chapter 12 also allows unique bankruptcy options, but only for certain farmers and fishermen.
Chapter 11 bankruptcy is a form of bankruptcy reorganization available to individuals, corporations and partnerships. It has no limits on the amount of debt, as Chapter 13 does. It is the usual choice for large businesses seeking to restructure their debt. However, individuals usually file Chapter 7 or Chapter 13 rather than Chapter 11. The exception for individuals is when they have income that disqualifies the debtor for a Chapter 7, and a high debt level that disqualifies them for a Chapter 13.
The debtor usually remains in possession of its assets, and operates the business under the supervision of the court and for the benefit of creditors. The debtor in possession is a fiduciary for the creditors. If the debtor’s management is ineffective or less than honest, a trustee may be appointed.
A creditors committee can be appointed by the U.S. Trustee from among the 20 largest, unsecured creditors who are not insiders. The committee represents all of the creditors in providing oversight for the debtor’s operations and a body with whom the debtor can negotiate an acceptable plan of reorganization.
A Chapter 11 plan is confirmed only upon the affirmative votes of the creditors, who are divided by the plan into classes based on the characteristics of their claims, and whose votes are a function of the amount of their claim against the debtor. This is a key difference with a Chapter 13 case—the creditors ability to vote on the plan.
If the debtor can’t get the votes to confirm a plan, the debtor can attempt to “cram down” a plan on creditors and get the plan confirmed despite creditor opposition, by meeting certain statutory tests.
Chapter 11 cases are very, very complex. Only the most skilled and committed bankruptcy attorneys handle Chapter 11 cases. Our firm does a significant amount of Chapter 11 work, for both debtors and creditors.
Chapter 11 is also undoubtedly the most flexible of all the chapters, and as such, it is the hardest to generalize about. We routinely confirm Chapter 11 Plans that are highly customized and meet the exact needs of the client. We do substantial amounts of both business Chapter 11 cases as well as individual Chapter 11 cases (often to address investment real estate holdings or deal with large amounts of tax debt).
You will find that we are very honest and direct with our clients, and sincerely want them to always know the actual truth of the situation. As such, you should know that because Chapter 11 cases are expensive, and sometimes fail, they must be carefully evaluated prior to filing to make sure it is the course of action that should be pursued. We can usually conduct a pre-filing review and planning session to see what a case for you might look like of up to three hours with a very seasoned Chapter 11 attorney for a flat fee of two hours of billable time.
A Chapter 12 case is a bankruptcy proceeding designed to deal with a special situation—a family farmer or fisherman. It is somewhat akin to a hybrid between a Chapter 13 and a Chapter 11, allowing us to pursue a customized plan but still using a trustee to administer the case. Here in Orange County, we have both fishermen and farmers so this may be an option we can explore for you too.
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