The steps involved in filing Chapter 11 bankruptcy are complex, so you will need the guidance of an experienced bankruptcy lawyer. If you believe Chapter 11 is the most suitable option for reorganizing your business, the following actions must be carried out to make the process go as smoothly as possible.
Chapter 11 Steps and Procedures
Bankruptcy Filing– The first step is the bankruptcy filing with the bankruptcy court. This may take the form of the company filing a voluntary petition, or creditors filing an involuntary petition.
Appointment of Trustee– The appointment of a trustee in a Chapter 11 bankruptcy typically involves the debtor continuing to run the business as the “debtor in possession”. There are also circumstances where it is necessary for a court appointed trustee to take over the business.
Automatic Stay– An automatic stay prevents the continuation of most creditor actions. This court order typically applies to all creditors, regardless of whether a debt is secured or unsecured.
Avoidable Transfers– The trustee has “avoiding” powers that gives them the right to undo a transfer of money or property that occurred within 90 days prior to filing and in some cases, this also includes transfers within 1 year prior to filing. This is a tool that can be used to prevent unfair payments to one creditor or a related person or entity, which is to the detriment of another.
Disclosure Statement– The debtor must file a written disclosure with the bankruptcy clerk that contains a list of creditors, among other things, such as historical financial information and projected future financials. The disclosure statement is designed to show creditors the debtor has a viable reorganization plan. The disclosure statement must be approved by the court by holding a hearing prior to allowing voting on a reorganization plan.
Notice to Creditors– The court clear will use the list of creditors to send out a notice of filing of the petition. It is up to the debtor to ensure all creditors are included; although creditors can also file a petition.
Filing Proofs of Claim– There are a number of rules related to filing proof of claims. You should consult with an experienced bankruptcy lawyer when creating your list of creditors to ensure all relevant creditors receive notice and are able to file proofs of claim. If a creditor does not file a proof of claim, the amount of debts listed by the debtor in schedules filed with the court is used. It is very important to ensure schedules and statements filed with the court are correct.
Unsecured Creditors’ Committee– The United States Bankruptcy Trustee appoints a committee of unsecured creditors. This usually consists of the seven largest creditors on the list of unsecured creditors. The committee is charged with representing the interests of all unsecured creditors. However, in many cases, unsecured creditors do not have interest in being part of a committee and no unsecured creditor committee is formed.
Plan of Reorganization– When a debtor files for Chapter 11 bankruptcy, a 120-day period commences during which the debtor retains the right to file a reorganization plan. In certain cases, this 120-day period is shortened. Only after this time has passed may a creditor, or the case trustee, file an alternative plan.
Monthly Operating Reports– Debtors must file monthly operating reports from the time the case is filed until it is closed. These reports provide details of all income and expenses of the debtor.
Quarterly Fees– Each quarter, the debtor must pay fees to the U.S. Trustee. The amount of the fees is determined by the expenses of the debtor. In some cases, these fees can be significant and expensive, especially for large corporations and business operations.
Confirmation Hearing– A hearing must be held, in accordance with the bankruptcy code, on confirmation of the reorganization plan. This may only take place after notice has been given to all parties in interest. The court may then determine if the plan is in accordance with Chapter 11 criteria and approve, or confirm, the plan..
Post-Confirmation Administration and Modification– Once the plan is confirmed, the debtor is committed to making payments and all other provisions of the plan of reorganization. The plan may be modified if certain criteria are met.
Final Decree– A final decree is designed to close the case and must be entered after such time as the estate has fulfilled administration of the plan of reorganization.
If you have additional questions about the Chapter 11 bankruptcy process, reach out to H. Lehman Franklin P.C. on 912-764-9616 or via email at firstname.lastname@example.org.