Re-organization
THE FOLLOWING QUESTIONS AND ANSWERS ARE FOR INFORMATIONAL PURPOSES ONLY, AND NOT LEGAL ADVICE. THIS Q & A IS GENERAL IN NATURE. FEEL FREE TO CALL US WITH QUESTIONS ABOUT CHAPTER 11 AT (231) 929-7000.
1. What is a Chapter 11 Bankruptcy?
Chapter 11 permits a person or business to reorganize while obtaining protection from its creditors.
2. Who cannot file a Chapter 11?
A governmental agency, estate, nonbusiness trust, stockbroker, commodity broker, insurance company, bank, or SBA-licensed small business investment company. An individual may not file under Chapter 11 if he or she has had another bankruptcy case dismissed within the last 180 days.
3. Does a person have to be engaged in business to qualify for Chapter 11 relief?
A person does not have to be engaged in business to obtain Chapter 11 relief. However, the person filing under Chapter 11 must have something to reorganize, rehabilitate, or liquidate before Chapter 11 relief can be granted. A Debtor with substantial personal investments or assets may use Chapter 11 to reorganize or liquidate investments or assets, even if he or she is not engaged in business in the traditional sense.
4. How long does a Chapter 11 case last?
There are two phases in a Chapter 11. The pre-confirmation phase and the post-confirmation phase. The first phase is prior to the confirmation of a Plan. The first phase normally lasts from six to twelve months. The time may vary depending on the condition of the Debtor, the type of Plan proposed by the Debtor, and the reaction of creditors to the Plan. The second phase is the phase where the confirmed Plan is implemented and carried out by the Debtor. The second phase normally lasts from three to five years. The time may vary in duration.
5. Is the Debtor permitted to operate its business during a Chapter 11?
The Debtor may continue to operate its business during a Chapter 11 as a debtor in possession unless a Trustee is appointed. In operating its business during a Chapter 11, the debtor in possession, must abide by the requirements of Chapter 11 and the orders of the Bankruptcy Court.
6. What limitations are placed on a Debtor’s right to use, sell, or lease its property during a Chapter 11?
The Debtor may not use, sell, or lease cash collateral unless each creditor secured by the cash collateral consents, or unless the Court approves the proposed use, sale, or lease until the Plan is confirmed. Unless the Court orders otherwise, the Debtor may use, sell, or lease any of its property except cash collateral in the ordinary course of business during the case without prior notice to creditors or Court approval. The Debtor may use, sell, or lease property other than cash collateral outside the ordinary course of business during the case only after notice to any affected creditors and a Court hearing.
7. May a Debtor incur new debts and obtain new credit during a Chapter 11?
A Debtor may obtain unsecured credit in the ordinary course of business during a Chapter 11 without Court approval. Further, the unsecured debt obtained is payable as an administrative expense. An administrative expense means that those creditors get paid ahead of all other unsecured creditors. Court approval is required prior to obtaining any other type of debt.
8. What is a Chapter 11 Plan?
It is a written document that states the terms of how the Debtor will deal with its creditors and interest holders. A Chapter 11 Plan must comply with the legal requirements of Chapter 11.
9. For how long a period may a Chapter 11 Plan run?
The Plan must not be so long that it does not appear feasible to the Court. Typically, it takes from three to five years.
10. What happens if the Debtor is unable to comply with the provisions of a confirmed Plan?
The Plan may be amended if sufficient grounds exist for an Amendment. Otherwise, the Chapter 11 may be dismissed or converted to Chapter 7. Creditors may sue, or foreclose on the property either in the Bankruptcy Court or in other Courts.
11. What happens when all of the provisions and requirements of a Chapter 11 Plan have been carried out?
The Plan is said to have been consummated. A final report and accounting must be filed when a Plan has been consummated. Then the case will be closed by the Court.