Bankruptcy - Las Vegas
  - Chapter 7 Bankruptcy
  - Chapter 11 Bankruptcy
  - Chapter 13 Bankruptcy
  - Creditor's Rights

CHAPTER 11 BANKRUPTCY

Who Can File for Chapter 11?

Chapter 11 is primarily for businesses who wish to remain in operation by reorganizing their financial affairs, and also for certain individuals with very large debts who exceed the strict debt threshold limitations of Chapter 13 qualification.  Businesses who wish to liquidate will file under Chapter 7.

Corporation/LLC:  A corporation (or LLC) exists separately and apart from its owners, the stockholders (members). The Chapter 11 bankruptcy case of a corporation (or LLC) does not put the personal assets of the stockholders (members) at risk, although they may lose the value of their investment in the company’s stock.

Sole Proprietorship:  A sole proprietorship, on the other hand, does not have an identity separate and distinct from its owner(s); accordingly, a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors.

Partnership:  Like a corporation, a partnership exists separately and apart from its partners; however the partners’ personal assets may, in some cases, be used to pay creditors in the bankruptcy case; or the partners may be forced to file for bankruptcy protection.

What is Chapter 11?

Chapter 11 allows the debtor to continue business operations by means of a plan of reorganization, rather than undergoing a Chapter 7 liquidation. Chapter 11 is unique in that the debtor remains in possession of all its assets and its ongoing business. In other words, the debtor itself (or himself or herself) is the trustee for the bankruptcy estate. While this is a great advantage, it does not come without its costs, and there are many fiduciary responsibilities.

There are great powers afforded to Chapter 11 debtors, such as the ability to object to your creditors' claims, avoid liens, reject leases and contracts with no penalty, extend the time for repayment to your existing creditors or even reduce the amount owed or paid to them.

Why Does Chapter 11 Exist?

By enacting Chapter 11, Congress gave the debtor a chance to restructure its finances so that it may continue to operate, provide its employees with jobs, pay its creditors, and produce a return for its stockholders. Because Chapter 11 envisions an ongoing business, the most likely persons to have knowledge of the operation and details of the business are the existing management who normally continue operations during the Chapter 11 process.

A major rationale for business reorganizations is that the value of a business as an ongoing concern is greater than it would be if its assets were sold. When a business develops financial difficulties, such as not being able to pay its creditors due to cash flow problems, it may consider filing a Chapter 11 bankruptcy. If the business can extend or reduce its debts, or drastically lower its operating costs, it often can be returned to a viable state. Generally, it is more economically efficient to reorganize than to liquidate, because doing so preserves jobs and assets. Cooperation among the various interests, however, is crucial to a successful reorganization.

How Does Chapter 11 Work?

Many steps are involved in Chapter 11 cases, and the process can be rather complex.  For a detailed overview of the components, click here (pdf).

The ultimate purpose of a Chapter 11 case is to get a Plan of Reorganization confirmed by the court. The Plan is basically a contract with one's creditors as to how they will be repaid, and from what source. The creditors have to vote for the Plan in certain numbers, or if they do not vote in sufficient numbers for the Plan, they may be forced to accept the Plan if other requirements are met.  There are many ways to formulate a Plan, subject to the requirements and limitations of the Bankruptcy Code.

How Much Does Chapter 11 Cost?

Currently, the courts charge a $1,039 filing fee, comprised of an $1,000 petition filing fee plus a $39 administrative fee.  Our legal fees are in addition to that filing fee, and Chapter 11 cases require substantial retainer fees.  Please call for pricing, because it varies by case.

Chapter 11 is time consuming and administratively burdensome, e.g., monthly reports must be filed with the court and the U.S. Trustee's Office.  Also, often there is litigation associated with any Chapter 11 case, either with the debtor attacking the creditors, or vice versa.  As such, attorney and other professional fees (for accountants, etc.), which are in addition to the filing fees, can rapidly run into the thousands of dollars.  All costs are paid out of the ongoing operations or remaining assets of the debtor.

The overall costs of Chapter 11 can sometimes be reduced by obtaining creditor pre-approval of a proposed Plan prior to filing, in what is known as a “pre-packaged” bankruptcy.

List of Required Documents – Chapter 11

Below is the list of required documents for a Chapter 11 filing.  If it is an emergency filing, only the ones labeled with an * are required at that time.  The attorney works closely with the debtor prior to filing in order to confirm the accuracy and completeness of all documents.

1. Voluntary Petition with Exhibits (first three pages)*
2. Corporate Resolution Authorizing Filing of the Petition (if debtor is a corporation)*
3. Summary of Schedules
4. Schedules A through J (for corporations, A through H only)
5. List of Top 20 Unsecured Creditors*
6. Declaration Concerning Debtor’s Schedules (included with schedules)
7. Statement of Financial Affairs
8. Corporate Ownership Statement
9. List of Equity Security Holders
10. Master Mailing List*
11. Verification of Creditor Mailing List*