Chapter 11 bankruptcy What do I need to know?

Recently on our bankruptcy forum a user asked, “I started a restaurant five years ago with a partner. Unfortunately, with competition and growing expenses we’re having trouble paying our bills. I need more information about filing Chapter 11 bankruptcy. I would love to keep the restaurant open, if possible.”

Overview of Chapter 11 bankruptcy

Chapter 11 bankruptcy, generally referred to as a reorganization bankruptcy, is available for corporations, partnerships and sole proprietorships. Individuals may also file Chapter 11 if they have too much debt to file Chapter 7.

Steps to initiate a Chapter 11 bankruptcy

Before filing Chapter 11 bankruptcy it’s important to seek legal counsel from a bankruptcy lawyer. A bankruptcy lawyer can review your financial status, help determine if bankruptcy is the right decision for you, identify the necessary steps to complete the bankruptcy and answer your bankruptcy questions. If you decide filing Chapter 11 is the right decision, you will need to follow the steps below:

  1. File a Chapter 11 petition with the bankruptcy court.

To initiate Chapter 11 you will need to file a petition in the correct bankruptcy court. Debtors will also need to file additional forms including (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. Additional forms may be required if the debtor is an individual. All forms may be downloaded from the US Courts site.

  1. Pay all the necessary fees.

Next, you will have to pay all the necessary filing fees. Currently, the filing fee for Chapter 11 is $1,167 and a $550 miscellaneous administrative fee. Under some conditions, the filing fee may be paid in installments.

  1. Debtor continues to operate business.

Although the debtor in possession generally continues to operate their business, in some cases, the court will decide to appoint a trustee to oversee the case. If the court assigns a U.S. trustee to oversee the Chapter 11 case they will be responsible for overseeing operations of the business, submitting operating reports, and monitoring fees. They will also be responsible for conducting the meeting of the creditors, monitoring compensation and disbursements to professionals, and reviewing the disclosure statements filed with the court.

Note: small business debtors may have additional oversite where the U.S. trustee will review certain aspects of the debtor’s business plan and review various reports.

  1. File a Chapter 11 plan.

Generally, the debtor (unless a “small business debtor”) has a 120-day period during which it has an exclusive right to file a plan. If a plan is not filed the case trustee or a creditor may file a competing plan.

Note: the completing, confirmation and implementation of the Chapter 11 plan is the most important part of the Chapter 11 case.

What else do I need to know about Chapter 11?

One of the most common question Chapter 11 filers ask is, “How long will this take?” Unlike other bankruptcy filings, there is no absolute duration. In fact, in some cases, your bankruptcy case may be completed within a few months; other cases may take several years to complete.

Bottom Line:

Although Chapter 11 is not as popular as Chapter 7 or Chapter 13, it is an option for some debtors.

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Beth L. has been a contributing writer to websites since 2008. She has a background in Business Management and Management Information Systems and graduated from the University of Texas in 1996. Now she specializes in content development for legal entities for issues regarding bankruptcy, personal injury and Social Security Disability law.