THINKING ABOUT FILING A CHAPTER 11 “REORGANIZATION” BANKRUPTCY?

Advantages of filing a Chapter 11 Bankruptcy:

1. If you wanted to file a Chapter 13 bankruptcy, but were over the debts limits, then Chapter 11 would be the right kind of bankruptcy for you.
2. If you were thinking of filing a Chapter 13 bankruptcy to reorganize a business entity, you would need to file a Chapter 11 bankruptcy instead.  Unlike Chapter 13, which is only available to individuals and married couples, any business entity from a sole proprietorship to an international corporation – such as General Motors, Chrysler and United Airlines – can file a Chapter 11 bankruptcy.
3. As with any bankruptcy, you have immediate protection against creditor’s collection efforts, foreclosure sales and wage garnishment.
4. You have protection against foreclosure on your property for at least a limited time, possibly indefinitely if the Chapter 11 Plan is approved.
5. If you can afford the payment plan and can still make your mortgage and/or car      payment(s), you can keep all your property, even if it is not protected by      exemption(s) and has lien(s) attached by secure creditor(s).  (Thus you don’t need to worry about real property that has equity and/or autos that have not been paid off, as with Chapter 7.)
6. Chapter 11 gives the most options to reduce secured debt.  You can “cram down” your mortgage(s) to FMV (Fair Market Value) on underwater real properties; this can be done on all properties except your primary residence.  Junior liens can be stripped.
7. You have more time to pay debts that can’t be discharged by either chapter 7 or 13 (such as taxes or back child support).
8. You can file a Chapter 11 at any time, as long as you meet the qualifications.
9. You can file and dismiss cases more easily than with Chapter 7; you can      voluntarily dismiss the bankruptcy case and there is no specific deadline to file a Chapter 11 Plan, unless one is set by the court.
10. You can separate your creditors by class where different classes of creditors      receive different percentages of payment.  This enables you to treat debts where      there is a co-debtor involved on a different basis than debts incurred on      your own.
11. In some cases, Chapter 11 Bankruptcy is the only viable solution for an individual to avoid financial meltdown or for a business to avoid liquidation.

Disadvantages of filing a Chapter 11 Reorganization Bankruptcy:

1. You create a payment plan where you use all of your excess post bankruptcy income to pay off your creditors.  This limits your ability to spend during the Chapter 11 plan period.
2. The Court oversees all of your financial affairs.
3. It is nearly impossible to hide the bankruptcy; Checking accounts will state that your are in bankruptcy.
4. Legal fees are significantly higher since a Chapter 11 filing and administration is more complex, and the court and trustee monitor your case every month.  In addition, the filing fees are also higher; for example, the court filing fee is $1,213      compared to $281 for a chapter 13 case.

Chapter 11 – The Process:

1. Your attorney’s first task after filing the petition is to draft and get approval valuations and a disclosure statement.
2. After the “Seven Day Package” is completed, Client and Attorney will meet with the US Trustee, who monitors the case, and the special “Debtor-In-Possession (DIP) bank accounts” will be set up.
3. Client (the DIP) will begin submitting monthly operating reports (MORs).
4. Attorney will begin negotiating with Creditors, drafting motions and appearing in court as needed.  There are numerous options available, including cramdowns, lien stripping, surrendering poorly performing financial assets, and filing “Adversary Proceedings” (lawsuits filed within the bankruptcy court) against creditors for various reasons including fraud, statutory violations, and lack of standing.
5. The next step is confirmation of the chapter 11 Plan, where at least one class of creditors go along with the plan.
6. After plan confirmation the terms of the plan are carried out.
7. The chapter 11 discharge will usually occur upon substantial consummation of the plan; there is no set time limit, as with Chapter 13.