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Chapter 11 bankruptcy? Explain in brief
In the USA, the most popular chapters for bankruptcy are chapter 7 and chapter 13. But time may come when your debt will become greater than what chapter 13 can handle. Or you can have a business with unpaid creditors, vendors, staffs whose debt need to be paid. The court will study whether you have a business that’s down under right now but has a product portfolio that will help the business rise again in future when the debt comes down, demand good up and necessary changes are made in operational part of the business.
Chapter 7 is the simplest of the bankruptcy code and is the quickest to show results. However, it is also tailor-made to sell most assets and rid debtor off his debt. It is meant to liquidate almost whole of assets barring a few exempt ones. On the other hand, we have chapter 13, which is optimized to allow you more time for debt repayment, while keeping most of your business running. What happens if the debt of the concern grows too big and over the threshold limit? It can no longer be solved via chapter 13.
In such cases, chapter 11 bankruptcy will kick in. Chapter 11 is geared towards streamlining the day to day operational part of the business so that the debtor can return a part of debt every month to all sorts of creditors. In chapter 7 the stress is on getting rid of debts by liquidating most of the business. In chapter 11 the stress is on saving the business, by the dual approach of liquidating the non-core areas and negotiating for lower debt.
Chapter 11 bankruptcy filing in Atlanta, Georgia
Atlanta chapter 11 bankruptcy can be downright painful. Painful because it will be expensive. Expensive because it involves a detailed planning by the chapter 11 bankruptcy lawyers that you will never be able to do it by yourself.
The attorney charges you higher, because of the negotiations he has to do with your creditors. His fees increase by leaps and bounds because he has to formulate a plan at every stage and for each of your creditor and get their approval. Then the plan has to earn the trust and approval of your trustee and eventually the bankruptcy court.
What are the benefits of chapter 11
However chapter 11 is not only of high costs, an innumerable round of courts and plan after plan. It has a unique way to value your business. The foremost is the value it gives to your brand name or goodwill or future revenue if it is really worth. In this age, a software company may not survive, because there are many of the same nature. But a hardware company making 4g or 5g gear may survive because of the future orders it may receive. For brand name value, take Nokia for example. Nokia is a brand known for its reliability and hardware quality. It could not survive in the race due to its Symbian OS in face of Android.
The judge may pass its chapter 11 reorganization plan because adopting Android OS for its smartphones may plug this loophole. And make it products saleable and Nokia profitable again, because there is still demand due to its reliability.
The sole concern of chapter 11 is whether the business can profitable if a partial debt relief is provided. If revival is not practically possible, attorneys prescribe filing a chapter 7. It saves future heartburn for both the debtor and the lender.
There are many famous chapter 11 cases which have turned out to successful. Notable among them is the case of famous automobile manufacturer “General motors”. In case you think whether the famous GM has survived of not (with government equity infusion), see its Chevrolet brand which is running strong worldwide and the Hummer brand which it sacrificed in 363. For more on chapter 11 cases, you can also refer the famous Lehman case, made infamous by the aftermath of 2008meltdown.
Let’s see who can file a chapter 11 bankruptcy
Any LLC or individual, having an ongoing business can file chapter 11. However, individuals filing for chapter 11 bankruptcy in the category of “small business”, on filing day should not have net debt greater than 2566.050 $. Broken down, his unsecured debt should not be over 394.725 and his secured debts cross 1184.200 $. This includes all secured and unsecured non-contingent debt. He should not have been disqualified from chapter 11 in the preceding 180 days. He shouldn’t already be under the watch of any creditors committee.
The filing for chapter 11 bankruptcy is antonym of filing in chapter 7. Long before petition filing takes place you need to select the chapter 11 bankruptcy attorney. Usually, attorneys will excuse themselves once they sense your urge for chapter 11. Primarily it involves extensive planning which needs the approval of creditors. This reorganization plan has to segregate assets to be sold under 363, and assets to be kept. Lenders have to be placed under priority, secure and unsecured lenders. Working capital has to be planned. Money has to be generated for day to day expenses, salary, worker benefits. You need to show all of these details in the plan. This needs a team of paralegals, chapter 11 bankruptcy attorneys and of course deep, deeper pockets.
Experienced Chapter 11 Bankruptcy Attorney in Atlanta, Georgia
We have a rich experience in the field of chapter 11 ourselves.
In chapter 11 the debt repayment plan, the creditors are divided on basis of priority of payment. First priority is given to workers, their benefits, and creditors like vendors who help to run the business. The plan is known is “disclosure plan” and contains the blueprint for assets which are to be liquidated. Core assets kept for running the business are also proposed. Bankruptcy attorney also details ways to reduce the debt. This “disclosure plan” is sent to the trustee, bankruptcy court and of course all the creditors.
The trustee board has an initial meeting with debtors for a quick stock of situation and info on how the debtor will manage the situation. The debtor is also made aware of his responsibilities as debtor-in-progress.
The lawyer sends the following details to the trustee, and court at regular intervals.
- Monthly income
- Cash flow
- Operating income
- Balance sheet reports (for “small business” monthly reports are mandatory).
Within 45 days the creditors meet with the debtor and his plan. Objections are raised, plans are modified and ultimately every creditor comes on board. After that, go ahead to the bankruptcy court, repayment as per plan starts.
Cost of filing chapter 11
To file chapter 11 at the bankruptcy clerk office, pay 1,717$. Compare it with fees of chapter 13 which is only 310$. The fees of inexpensive attorneys in uncomplicated cases can be minimum 15,000 $. However, in reality, no case 11 is without complexity, and fees of a chapter 11 bankruptcy attorney routinely exceed 100,000 $. Many attorneys prefer working on per hour model, owing to their fear of themselves falling in line of creditors to be paid. Such is the complexity of Chapter 11.
How long is chapter 11 bankruptcy?
Chapter 11 bankruptcy can extend for years after the plan is passed. The all-important plan is initially submitted within 4 months of filing. However, if the court can be convinced by the cause, the “disclosure plan” filing date can increase to 18 months since the date of petition filing. After the plan is passed, the proceedings with business go on according to the “disclosure plan”.Non compliance by the debtor in progress may end chapter 11 and push the company to liquidation through chapter 7.
What does chapter 11 mean to employees?
For employees, chapter 11 reserves the priority unsecured creditors status. He is liable to get his unpaid wages, hourly wages, severance pay, sick leave pay, vacation allowance not exceeding 12,475$ per employee.
The employee should scrutinize the “disclosure form”. If he is not happy with the plan allotted for him in the reorganization plan, he should immediately fill the “Claims Form”. Why is this important? If the employee fails to file this, he may not be in a position to file any claims later on.
If you feel that your company is reaching a position, where cash position is becoming untenable although sales are not bad, you feel that the business can revive in future when sales pick up, then you can think of chapter 11 and henceforth, us.
Take the pain of chapter 11 if only you have the confidence that you can revive your business. Note that you need to support the claims by monthly financial reports, so do not daydream. Else you can try through our law firm based in Atlanta,GA to negotiate off the court, for head cut in the debt amount, lower fixed rate of interest and increased period to pay back the loan or a lump sum amount to forgo the rest of loan. Jumpstart; Reset your business with us, without taking the rocky terrain of Chapter 11.
We are just a phone call away. We serve clients in Roswell, Atlanta, Alpharetta, Sandy Springs, and Marietta.
For scheduling appointments, head over to “ https://www.gallerlaw.com/schedule-an-appointment/ “or for preliminary bankruptcy consultation ring 770-671-8830
Merin Mathew is a freelance writer