Chapter 11 Timeline and Process

The Chapter 11 timeline and Chapter 11 reorganization bankruptcy process for filing bankruptcy includes choosing an attorney, filing the paperwork, and waiting for the debts to be discharged by the court. Chapter Eleven bankruptcy is commonly referred to as reorganization bankruptcy because the company filing the petition must also file a plan for reorganization with their petition to their Chapter 11 bankruptcy creditors. Filing for Chapter 11 bankruptcy is a lengthy and pricey process to deal with for individuals or corporations if they do not enlist the help of an experienced bankruptcy attorney. Most debtors in a Chapter 11 bankruptcy case not only have to pay their own legal fees but also the legal fees of their creditors along with the required filing fee and miscellaneous administrative fee charged by the court at the time of filing.

What Happens Under a Chapter 11 Bankruptcy?

If a business is unable to pay its creditors or service its debt, either the business or its creditors can go to court to file for bankruptcy protection under Chapter 11. The largest benefit of Chapter 11 to the debtor business is that the debtor usually gets to maintain control and ownership of the business and its assets as a debtor in possession.

Benefits of a Chapter 11 Bankruptcy

There are a few significant benefits to filing under a Chapter 11 bankruptcy, such as:

• The debtor usually maintains control of the business. A separate trustee may only be appointed if there is cause, such as misconduct by the debtor.
• The debtor can get financing and loans on favorable terms if new lenders are given first priority on the earnings of the affected business
• The court may allow a debtor to reject or cancel certain executory contracts (agreements where each party to the contract has continuing duties under the contract) – some examples are real estate leases, labor union contracts and supply or operating contracts
• The business can't be sued in other proceedings since bankruptcy grants it an automatic stay
• The debtor is the only party that can propose a reorganization plan to get the business back on solid footing

These benefits are important for many reasons:

• The debtor maintains control over the business and its recovery
• More favorable lending and funding terms could improve the fiscal health of the business
• Canceling certain contracts may also improve fiscal health
• Other litigation will not happen while the bankruptcy is taking place

Credit Counseling Prior to Filing

Once an attorney has been hired, the debtor must attend credit counseling if they wish to file for Chapter 11 bankruptcy as defined by the United States Bankruptcy Code. If the debtor does not attend credit counseling from an approved credit-counseling agency then they will not be permitted to file for bankruptcy under federal and state laws. Credit counseling is a set of courses that educate the debtor on financial issues such as managing accounts, paying credit card bills, managing payments, avoiding debt, reconsolidating debt and many more topics. By taking credit counseling courses the debtor might learn a new way to deal with debt and the rest of their finances, persuading the debtor from filing for bankruptcy.

Meeting of the Creditors

The next step in the Chapter 11 timeline is to have a meeting with the creditors. This is a mandatory meeting for the debtor to attend but not for the creditors to attend. If the creditors do not show up, the meeting will still take place because it is presided over by the trustee assigned to the case. This meeting typically is schedule for 30 days following the filing date of the petition. The meeting of the creditors is nicknamed the “341 meeting” after the section of the Bankruptcy Code that requires the meeting to take place. The trustee will ask the debtor questions regarding the bankruptcy filing, about the debtor’s assets, and about the debtor’s liabilities while being under oath. The purpose of the meeting is to act as a fact finding mission for both the trustee and the creditors involved. Neither the creditors nor the trustee can make any decisions regarding the case once the meeting is complete.

Creditor’s Committee

When a business files for bankruptcy protection under Chapter 11, a creditor’s committee is appointed by the bankruptcy trustee. The creditor’s committee will consist of the seven largest creditors. The job of the committee is to oversee the operation of the business and to assist the business owner in preparing a reorganization plan.

Reorganization Plan

The business must submit the reorganization plan to the court within 120 days of filing of the petition. The creditor’s committee must approve the plan by all classes of creditors by majority vote. Once the reorganization plan is approved by the creditor’s committee, it must be approved by the bankruptcy judge. Once the plan is approved by the bankruptcy judge, the business must reorganize according to the plan. In case the business fails to submit the plan within 120 days or the plan is not approved by the creditors committee within 180 days, any creditor can submit a reorganization plan to the bankruptcy court.

The reorganization plan must divide the creditors in classes and list what each class of creditors will receive as part of the reorganization. A small business with debts not exceeding $2,000,000 can file as a small business. When a business files as a small business, the hearing to approve the disclosure statement and the conformation hearing can be combined into a single hearing and creditor’s committee need not be appointed. In case of a small business filing, the creditors cannot submit a plan within the first 100 days. If a creditor wants to submit a plan, the plan must be submitted before 160 days.

Cost

The initial filing fee is currently $839. In addition, you must pay a quarterly fee, based on a percentage of the disbursements made to pay your debts. The fee runs from $250 a quarter when the disbursements total less than $15,000, to $10,000 a quarter when disbursements total $5,000,000 or more. The fee must be paid until your reorganization plan is either approved or dismissed or your case is converted to Chapter 7 bankruptcy. Chapter 11 bankruptcy court fees could run from $1,000 to $10,000 in one year

Discharge of Debts

The final step in the Chapter 11 timeline is the discharge of the debts. The discharge of the debts is when the debtor has all of their debts removed from their records and accounts by the court presiding over the case. The debtor will be notified of the discharge of the debts via a letter that comes in the mail. If the debts are not discharged, which means the petition for bankruptcy has been denied, a letter will also be sent to the debtor detailing their rejection.