Reorganizing Business Debts With Chapter 11 Bankruptcy Law

By Credit Help

Any business entity, whether a large corporation, a small partnership or even a one-man sole proprietorship, can file under Chapter 11 in order to have their debts reorganized ...

It is the Chapter 11 bankruptcy law that allows businesses to seek the same protection and relief that individuals have a right to under the Federal bankruptcy statues. Any business entity, whether a large corporation, a small partnership or even a one-man sole proprietorship, can file under Chapter 11 in order to have their debts reorganized.

The Chapter 11 law requires that the business filing for bankruptcy, must provide full financial disclosure to the bankruptcy court. This means that the organization, or their bankruptcy attorney, must provide a complete and detailed list of all of the company's assets, all of the liabilities and a complete statement of the financial status and affairs of the entity.

Unlike other types of bankruptcies, according to Chapter 11 law, the debtor is able to act as his own trustee. In Chapter 7 and Chapter 13 bankruptcy cases, the court appoints a trustee. When a debtor acts as a trustee in a Chapter 11 bankruptcy, it is known as a "debtor in possession" because the trustee maintains possession of the property. However, the court is able to appoint a different trustee to the case if there is just cause shown, such as in the case of mismanagement of the business entity.

Approximately one month after filing for bankruptcy, the debtor and the attorney that has been secured for bankruptcy help have a meeting with all of the creditors of the company. Under Chapter 11 bankruptcy law the debtor must also file monthly reports showing operational activities and expenses. These reports detail the entity's income, disbursements, a profit and loss statement, and the company balance sheet.

Chapter 11 law allows for the debtor to file a financial plan during the first four months after a new bankrupt filing is submitted to the Federal bankruptcy court. After that time, the creditors of the company are allowed to submit filings of their plans.

The Chapter 11 law also requires that the plan submitted by the debtor includes a disclosure statement that goes into detail of company's financial situation and future plans. Some of the areas that are disclosed are the following: a summary of the company history and the primary cause that necessitated filing for bankruptcy; the company's assets and liabilities; the income and the expenses of the operation; a description of the company's treatment of their creditors; an analysis of asset liquidation; projections of future earnings; expected tax consequences; a discussion of various options open to the entity; and finally, the plan for repayment of the debts.

Under Chapter 11 bankruptcy law and the reorganization plan that is agreed upon, it is required that the business continues normal operation in order to provide a means by which to make payments on the repayment plan. The plan can also be paid if the company can secure new financing or by the selling off of assets. The creditors are paid in accordance to their standing of being a priority or non-priority creditor and depending on if the loan was secured or unsecured.

Next article: About Chapter 13 Bankruptcy

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