What Is the Option for My Fledgling Business?
If your company is in the red and you are worried about how to deal with your creditors, fret not. There is a viable option to make the bankruptcy process easier to manage. One of the best available options is a pre-packaged bankruptcy.
Pre-packaged bankruptcy is an alternative for companies considering bankruptcy. Throughout this procedure, the firm will prepare and set up creditor support for its bankruptcy plan prior to filing for bankruptcy. The reorganization plan is created with the involvement of the creditors chosen by the company and elected by the shareholders before the bankruptcy proceedings are initiated. This can be an extremely effective alternative because every little thing is “pre-agreed” to and therefore result in faster bankruptcy proceedings.
If you are looking into filing bankruptcy, it is best to consult a bankruptcy attorney in New Jersey to guide you on the next best step for your company. Most likely, either a pre-packaged bankruptcy or standard timeline bankruptcy is suggested. Regardless of what you choose, you will most likely opt for Chapter 11 bankruptcy for your firm.
What is Chapter 11 Bankruptcy?
Under Chapter 11 bankruptcy, the company or individual undertakes a reorganization to pay for its debts, restructure earnings and expenses while reclaiming revenues. If your firm is a corporation, limited liability company (LLC) or partnership, you have the ability to continue operating your business even during the bankruptcy process.
Working with a New Jersey bankruptcy attorney will make you better understand the nuances and the nitty-gritty of Chapter 11 bankruptcy. An experienced bankruptcy attorney will guide you on the requirements as well as the dos and don ts of Chapter 11 bankruptcy. ‘
Who is in charge of my company once I file Chapter 11 bankruptcy?
A debtor in possession (DIP) is a person or corporation that has filed for Chapter 11 bankruptcy protection. The DIP is still in control of the business or property even if the creditor has the legal rights to it under a lien or other security interest. The DIP can continue business operations in the best interest of the creditors. However, a DIP may only operate within the regular scope of business activities. Otherwise, court approval is required should there be any actions that go beyond the ordinary course of business. The DIP must also keep precise financial records, insure any property and file appropriate tax returns. A New Jersey bankruptcy attorney will help you or your company assume the role of the DIP and will guide you through any steps you need to take.
What are the steps of Chapter 11 Bankruptcy?
Using a Chapter 11 bankruptcy to reorganize your or your company’s finances can be a complex, lengthy process. As such, it is advisable to consult a bankruptcy attorney to be guided on the steps. Following is the typical process of Chapter 11 bankruptcy:
➤ Preparing your Chapter 11 Petition
You will be expected to complete a list of all of your (or your company’s) assets, debts, income, and expenses along with a summary of your financial affairs. You must make sure that everything is accurate. As soon as your documents are in order, you may now file your petition with the bankruptcy clerk’s office. In most cases, the filing of the petition triggers what is referred to as an “automatic stay”, prohibiting collection efforts of creditors against you unless permitted by the bankruptcy court.
➤ Filing Your Monthly Operating Reports
You are mandated to prepare and file your monthly operating reports with the bankruptcy court during the entire duration of your Chapter 11 bankruptcy case. Your reports will show your monthly income and expenses. These reports are accessible to your creditors, the bankruptcy court, and the trustee so that they may evaluate if your proposed reorganization plan is doable. Some debtors find it easier to go about these reports if they seek the assistance of an accountant, with the permission of the court.
➤ Attending the Initial Debtor Interview and Meeting of Creditors
You will be required to attend an initial debtor interview where the trustee will obtain information about your case and, in turn, will make sure that you have a clear understanding of your responsibilities.
After this interview, you will be tasked to attend a 341 meeting with your creditors. In this public hearing, you will need to answer questions under oath. Your creditors will ask you about your bankruptcy petition. This meeting is scheduled about 30-45 days after you filed your Chapter 11 bankruptcy case. The meeting usually lasts one to two hours for Chapter 11 cases.
➤ Filing a Disclosure Statement
You will need to file a disclosure statement together with a proposed reorganization plan and mail these to concerned parties, including your creditors. The disclosure statement contains details about the state of your finances. It also explains the rights of your creditors and how they may participate in the bankruptcy allowing them the opportunity to evaluate your plans and decide whether or not they will accept your plans.
➤ Attending the Disclosure Hearing
Once the disclosure statement is filed, the bankruptcy court sets and holds a hearing to approve or reject it. Usually, until the disclosure statement is approved, the reorganization plan will neither be accepted nor rejected by the judge.
There will be a hearing for the disclosure statement during which parties involved can object to the statement’s language. More often than not, disclosure statements are approved on a regular basis and the hearing is just a formality.
➤ Proposing Your Plan of Reorganization
A Chapter 11 plan of reorganization states how the claims for each class of creditors will be treated. The creditors are placed in classes:
1) Secured creditors (they have debt backed by collateral)
2) Priority unsecured creditors (their debt is not backed by any collateral and will be paid before those of nonpriority debt holders)
3) General unsecured creditors (their debt is not backed by any collateral and will be paid after priority unsecured creditors), and
4) Equity security holders (they hold equity security of the debtor such as a shareholder interest).
If a creditor is not amenable to how they are treated in your plan, you can file a motion asking the judge to force the creditor in accepting the plan. This is called a “cramdown”.
➤ Getting Reorganization Plan Approval at the Confirmation Hearing
At your confirmation hearing, you will ask the judge to approve your plan of reorganization. The judge will not approve your plan if you have not achieved votes of acceptance from all of your creditor classes. In the event of disapproval of a creditor class, you can file a motion for cram down of the non-accepting classes and the court will reschedule the confirmation hearing. Failure of the non-accepting creditor class to respond to the motion will be considered acceptance of your proposed plan. Otherwise, you can negotiate with the creditor to try to get it to accept the plan treatment. If you and the creditor still cannot come to an agreement, the judge will decide at the hearing.
➤ Paying the Creditors
After the judge’s approval of your reorganization plan, you are required to start paying creditors according to how it is stated in the approved plan, which is now considered the new contract. You are to strictly adhere to the stipulations of the new contract you entered into with your creditors. Failure to pay on time may result in a possible lawsuit.
Depending on what type of debts you reorganized through the bankruptcy, these payments may go on for many years. Debts like mortgages or car notes typically get re-amortized over an extended period.
➤ Crossing the Finish Line: Discharging of Debts
The main objective of filing Chapter 11 bankruptcy is to discharge debts. The discharge is granted once all debts to your unsecured creditor class have been paid. Once all required payments have been settled, you may ask the court for a discharge of the remaining unsecured debts. This motion prevents any of these creditors from further collection activities on any debts in the plan.
Do I really need a bankruptcy attorney?
If your company is in dire financial straits and you are considering filing for bankruptcy, working with a bankruptcy attorney can take a load of your shoulders. An experienced bankruptcy attorney will be there to assist and guide you through the process. Look for a bankruptcy attorney with a good track record and will make sure you do not get into further trouble with the court or your creditors. Contact Karina Lucid, one of the best bankruptcy attorneys in New Jersey, for a free initial case consultation.