Chapter 11 Reorganization
One type of bankruptcy that allows individuals and business owners to maintain control of their assets is Chapter 11. Commonly referred to as reorganization, a Chapter 11 proceeding allows New York City residents to work out a plan to pay down debt without giving up complete control to a bankruptcy trustee. Here’s what you need to know about Chapter 11 bankruptcy in order to determine if it is right for you.
Voluntary or Involuntary Filing
Chapter 11 petitions are usually filed voluntarily by individuals or businesses who are seeking debt relief. Even so, they may sometimes be filed involuntarily whenever a group of creditors conspire with one another to obtain relief from a debtor who has defaulted.
Once a Chapter 11 petition has been filed, New York bankruptcy courts will issue what is known as an automatic stay. An automatic stay prevents creditors from making any further attempts at collection, to include filing liens, repossessing property, or completing foreclosure actions.
Committee of Unsecured Creditors
In many cases, a committee of unsecured creditors is formed to ensure each one has a say in the proceedings. This committee is typically formed in cases that are extremely complex or ones involving large sums of money. They are more often used when businesses file Chapter 11, and are rarely used for individuals.
The Committee of Unsecured Creditors is made up of three of more of your unsecured creditors, who are selected by the United States bankruptcy trustee assigned to your case. The individuals on this committee serve as volunteers, and may retain legal counsel or financial planning assistance to help them in their decision making. The cost of any legal counsel or professional advice obtained by the committee is passed onto the debtor.
Plan of Reorganization
A debtor must file a plan of reorganization detailing how certain debts will be paid within 120 days of filing a Chapter 11 petition. During this period, the debtor has the exclusive right to file this plan. Should that time period elapse, a creditor or group of creditors may file a reorganization plan on that individual’s behalf. All plans are subject to approval by the bankruptcy court, regardless of who files them.
A plan for reorganization may include several things such as:
Refinancing existing loans to reduce interest rates or extend the term so that payments are more affordable
Renegotiating payment terms
Canceling contracts that are no longer beneficial
Voted on by Creditors
Creditors may vote on your plan if they are partially impaired, which occurs whenever they would be required to change payment terms. Those who are unimpaired (or not affected) are deemed to accept the plan as is,and are not required to vote. Creditors who will not recover are fully impaired and are deemed to automatically reject the plan outright. Before your plan can be accepted, two-thirds of creditors in number and half of creditors in dollars owed must vote to accept your plan.
Chapter 11 Cramdown
Bankruptcy courts can sometimes enforce a cramdown in Chapter 11 cases. This means certain terms are “crammed down” the throats of creditors despite their objections. Unsecured creditors are more likely than secured creditors to be subjected to a cramdown.
Pros and Cons of Chapter 11
There are several advantages and disadvantages to filing Chapter 11 bankruptcy. It may be a viable option if you have previously been turned down for Chapter 7 or Chapter 13. A Chapter 11 filing also does less damage to your credit score than other types of bankruptcy, and allows you to maintain greater control while proceedings are ongoing.
The biggest disadvantage to Chapter 11 is the fact that it can be extremely complex, and may therefore take a great deal of time to complete. As such, it may not be ideal if you are more interested in immediate rather than long-term relief.
Chapter 11 Legal Assistance
Since Chapter 11 proceedings are very complex, you should not attempt to file one of these petitions on your own. Instead, contact our New York City law firm to obtain the assistance you need with Chapter 11 or any other type of bankruptcy proceeding.
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