Chapter 11 Business Bankruptcy Lawyers – Astoria, Brooklyn & Manhattan, NY
When a business finds itself falling farther and farther behind on its financial responsibilities (such as payroll, paying back creditors, or making rent), a declaration of bankruptcy can serve to reduce these obligations while allowing the business to continue operating. During Chapter 11, the debtor proposes a plan to their creditors that would keep them operational by restructuring their debts and providing a plan to return to profitability. As part of the process, debtors are granted an automatic stay that prevents creditors from taking any action against the debtor, including collections. During the stay, the debtor may undergo restructuring or the selling of assets in order to meet the deadline in their proposal.
On the surface, Chapter 11 may seem to be the most appealing form of bankruptcy. Outside of special circumstances, it allows the current business owner (or owners) to remain in control of their company and grants them an extension to repay their debt. However, Chapter 11 is also the most complicated of bankruptcy cases and is difficult to navigate without the assistance of an experienced bankruptcy attorney. For these reasons alone it is best reserved for when other avenues are exhausted. It should never be viewed as a quick fix, and those seeking to file for Chapter 11 bankruptcy should understand beforehand that it is designed to ultimately favor the creditors. The lawyers at Ortiz & Ortiz are available to help assess your situation, determine if Chapter 11 is the best option for you, and guide you through the proceedings.
Understanding Chapter 11 Bankruptcy
It’s a common misconception among the public that declaring bankruptcy means voiding your debts. While this can sometimes be a result of the bankruptcy process, in many cases it simply isn’t. The purpose of Chapter 11 bankruptcy law is to restructure debts so as to make repayment easier over a longer period of time, not to make them vanish. A business declaring Chapter 11 continues to operate but must provide a plan that proves profitability and clearly illustrates how the debts will be repaid and over how long a time period.
Chapter 11 is not available for everyone. Debts must not exceed a certain monetary value. Additionally, individuals cannot file for any bankruptcy (Chapter 11 or otherwise) if they had a prior bankruptcy petition dismissed because they failed to appear in court or ignored the orders of the court. They are also prohibited from filing for bankruptcy if prior petitions were voluntarily dismissed when creditors requested assistance from the court to recover property they held liens on. Any debtors seeking bankruptcy must have received credit counseling from a credit agency within one-hundred and eighty days before filing their petition.
A debtor will typically know if they meet any of these conditions, but it is still in their best interest to get advice from legal counsel to see if Chapter 11 bankruptcy is the most viable option for them.
Filing the Petition
A petition must be filed with a bankruptcy court in the area where the debtor resides. An instance where the debtor files the petition is referred to as a voluntary petition. As part of the filing process, the debtor must include the following:
- A schedule of their liabilities and their assets
- Their current income
- Executor contracts and current leases that have NOT expired
- A statement outlining their current financial standing
All of this is done to prove to the court that your business is not so far into debt as to be completely unprofitable and that your debts can be paid off in the future. While you are proposing your plan, your creditors may propose their own to the same court. Ultimately, there will be hearing where each side will make its case and a judge will approve one plan over the other.
Why Chapter 11?
The purpose of Chapter 11 is to allow the debtor and creditor to agree upon a course of action that allows the debtor a new payment plan and to continue operations while restructuring their business. The Bankruptcy Code allows the debtor the right to file a plan during the first one-hundred and twenty days of a case, with an extension of up to twenty months from the original filing date. Debtors in Chapter 11 cases are required by law to have legal representation.
It should be noted that there are instances where the current business owners do not maintain control during Chapter 11 proceedings. A bankruptcy court could order the appointment of a trustee if they believe fraud, incompetence, gross mismanagement, or dishonesty have taken place on the part of the debtor. This is done at a judge’s discretion in order to maintain the best interest of the creditors.
What is A Trustee?
Any trustee appointed by the bankruptcy court comes from a branch of the Department of Justice. Their job is to oversee activity during Chapter 11 cases by reviewing reports that the debtor is required to file, keeping an eye on the case’s progress and seeing to it that goals laid out in the plan are met in the agreed upon time-frames.
Why Seek Counsel?
A petition for chapter 11 is, in its most basic sense, an argument that your business is still viable and worthwhile. The evidence you present supporting this is of the utmost importance. A judge will look at your financial weaknesses as well as your strengths in order to make a fully-informed decision. You’ll want the advice of legal counsel to help you present the strongest picture of your business while still addressing all the concerns a judge may have.
About Ortiz & Ortiz
For over fifty years the team at Ortiz & Ortiz has helped the people of New York solve their legal issues. With expertise in bankruptcy (business and personal) and debt resolution, the experienced team of lawyers of Ortiz & Ortiz can represent and protect you during these complex legal processes. Contact our firm today to schedule a consultation.