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Chapter 11 Bankruptcy Attorneys in Wooster, Akron, Canton, & Dover/New Philadelphia

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What is Chapter 11 Bankruptcy?

Chapter 11 is a form of bankruptcy that involves a reorganization of debt rather than a liquidation of assets. It is designed to allow debtors to restructure their finances and maximize the return on investment to their creditors. This offers the debtor a fresh start if they fulfill their obligations under the chapter 11 plan of reorganization. A proposed debt reorganization plan must be approved by the court and be in the best interests of the creditors in order to become the new contract.

Who Can File for Chapter 11?

Large corporations and small businesses. Chapter 11 bankruptcy is most commonly filed by businesses. It used to be feasible only for large corporations to afford the costs associated with chapter 11 bankruptcy. However, the Small Business Reorganization Act of 2019 that went into effect on February 19, 2020 added a new subchapter V to chapter 11 that streamlines and expedites bankruptcy for small businesses by allowing plans to be confirmed without the creditors voting on it. Debtors involved in businesses that cannot file chapter 13 can often put their businesses in chapter 11. Filing for a chapter 11 bankruptcy can help a viable business to stay open and continue to function while downsizing operations, reducing expenses, and renegotiating debts.

Individuals. Chapter 11 is also available for individuals whose total debt is greater than the amount allowed in a chapter 13. However, a chapter 11 is more expensive for an individual to file than a chapter 13 because there is more work involved in doing so. Individuals also need to pay quarterly fees to the US Trustee as long as the case remains open.

A Chapter 11 Bankruptcy can help you if:

  • You need to be in bankruptcy for longer than 60 months. For example, you may need more than 5 years to get caught up on a mortgage.
  • You need to change the terms of a car loan by paying only the value of the vehicle in more than 5 years, which is the maximum allowed in a chapter 13.
  • You prefer to make payments directly to the creditors instead of to a trustee, the latter of which is required in a chapter 13.

How Does Chapter 11 Bankruptcy Work?

AUTOMATIC STAY. As is the case with other bankruptcy chapters, an automatic stay prohibits creditors from pursuing the debtor for payments, evictions or foreclosures, a collections trial, bank levies, property seizures, and other collection processes. An automatic stay provides the debtor with the breathing room and time they need to reorganize their finances and negotiate a plan for repaying their debts in an orderly manner.

FILING A PETITION. A petition must be filed in bankruptcy court. If the debtor is filing the petition (as opposed to a creditor), they must fully disclose background information by submitting all required financial documents, fees, a list of debts and creditors, and proof of credit counseling. This information enables a creditor to determine whether or not debt reorganization is feasible. The debtor has the exclusive right to propose a reorganization plan for the first four months after the petition date, unless the court chooses to extend this exclusivity period. Once that period expires, the creditors, shareholders, and any third parties can propose alternate reorganization plans. The court must approve the disclosure statement before the creditors can vote on whether they accept the debtor’s proposed chapter 11 plan.

CONFIRMATION. Creditors are divided into classes based on the type of debt. They then vote on the plan proposed by the debtor. The judge and every impaired class of creditor—creditors who will receive less than what they are owed—must approve the plan before it can be confirmed.

POST-CONFIRMATION. Debtor is responsible for making all the payments to the creditors.

DEBTOR IN POSSESSION. The debtor in a chapter 11 bankruptcy is called a debtor in possession. If the debtor in possession is a business, the company continues to own and operate their business as usual while a chapter 11 is being filed. However, the court is in control of certain decisions, including:

  • Selling assets
  • Borrowing money through a mortgage or other financial financing agreement
  • Entering into or breaking a lease
  • Shutting down or expanding business operations
  • Retaining and paying attorneys and other professionals
  • Entering or modifying contracts with vendors and unions

Consult with an Akron Canton Bankruptcy Attorney

Are you a business owner or individual burdened with debt but not eligible for chapter 13 bankruptcy? If so, then chapter 11 may be your best option. Since chapter 11 bankruptcy is highly complex, it’s imperative that you consult with an experienced bankruptcy attorney before pursuing this option. We are nationally known and experienced bankruptcy attorney John R. Bates and experienced bankruptcy attorney James F. Hausen, together providing over 50 years of legal expertise. We serve the Akron, Canton, Wooster, Dover, and New Philadelphia areas.

Contact Northeast Ohio Bankruptcy Attorneys today to set up a free consultation to determine if a chapter 11 bankruptcy is the best course of action to help you repay your debts.

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