Will Chapter 11 Bankruptcy Help My Business?

So, you’ve explored the alternatives to bankruptcy and they don’t work for you or your business. Now you need to ask yourself,

“Will Chapter 11 Bankruptcy Help My business?”

First and foremost, it can enable your business to survive in the midst of financial hardships. A chapter 11 bankruptcy filing automatically stays all debt collection efforts against the business, including law suits. The automatic stay generally lasts until either the case is closed, dismissed, or the debtor receives a discharge. The stay of an act against property lasts until such property is no longer property of the “bankruptcy estate,” such as if the property is abandoned from the estate. It is possible for a creditor to have the Court lift the stay “for cause,” or if the debtor has no equity in the property and the property is found to not be necessary to the debtor’s reorganization.

A chapter 11 filing can force some creditors to work with you and your business to modify the terms and conditions of repayment, including law suits and actions by a landlord to evict a tenant. While the stay is not permanent, it can allow time to attempt to resolve the issues that lead to the lawsuit.

The primary purpose of a chapter 11 bankruptcy is usually to allow the debtor to reorganize or restructure the payment of debts. While it can help you restructure your debt payments, it will not increase the cash flow of the business. Therefore, chapter 11 is not a fool-proof cure for every business. For those that it can help, though, it is a valuable tool that can buy a business more time to work out its financial issues and reorganize its debts while it continues to operate.

Debts are “reorganized” in chapter 11 through the debtor filing a plan of reorganization. In the plan, the debtor classifies its creditors into classes, and specifies how the debtor will treat that class. There are some requirements in the Bankruptcy Code as to how a class of creditors must be treated, but as long as the plan complies with those requirements the plan is confirmable.

In addition to specifying how creditors will be paid, a chapter 11 bankruptcy can allow a debtor to assume or reject executory contracts and unexpired leases. In many cases, the ability to reject an unfavorable lease or contract can make a world of difference for a business, and can be the sole reason for a bankruptcy filing in some cases. A chapter 11 debtor can assume or reject contracts and leases either through a motion or through its plan.

In addition to complying with the Bankruptcy Code, to be confirmed a plan must be shown to be “feasible,” meaning that the debtor must show that it will be able to perform the plan. This is generally done using budget forecasts and profit projections. If a debtor cannot show that it will be able to perform under the plan of reorganization, the Court cannot confirm the plan. The Debtor will then be forced to either amend the plan, if such an amendment can make it feasible, or the case may be converted to chapter 7 or dismissed.

Once a chapter 11 plan is drafted, the plan is then circulated to creditor for voting. Creditors can vote to accept or reject the plan, and can also object to the plan if it is not feasible or doesn’t comply with the Bankruptcy Code. Despite any such objections, if the Court finds that the plan complies with the bankruptcy code, is feasible, and at least one impaired class of creditors accepts the plan, it can be confirmed by the Court. Once confirmed, the plan governs how creditors are treated, and is binding on creditors and supersedes any previous agreements or contracts between the debtor and creditors.

At Giddens & Gatton Law, & P.C. we serve Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. And we have bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases in New Mexico. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Our conveniently located office has ample free parking and is easily accessible by public transportation. We offer flexible office hours upon request.

To make an appointment for a consultation about your real estate matter, contact us online by visiting the firm’s website at www.giddenslaw.com, or call us at (505) 271-1053. Giddens & Gatton Law,amp; P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico