For a business that’s already fallen on hard times, declaring bankruptcy may seem like a final nail in the coffin. However, this way of thinking is just plain wrong – especially if the bankruptcy in question is Chapter 11.
As any reputable Chapter 11 bankruptcy attorney in San Diego can confirm, this solution is not about ripping the company apart and putting the pieces up for grabs. It is the exact opposite and, today, we’ll be exploring how and over which period Ch 11 can help a business recover.
What is the main goal of Chapter 11?
As you may already know, the central “theme” of Chapter 11 bankruptcy is a reorganization. Through this legal process, a financially distressed business gets the opportunity to reorganize its debt and operation structure, create a plan to once again become profitable, and ultimately arise from the ashes as a strong, viable economic entity. Here’s how it works:
- Reorganization: Ch 11 focuses on restructuring the company’s financial obligations (i.e. debts and assets) so it can continue to operate and repay the creditors simultaneously.
- No liquidation: While Chapter 11 does not fully eliminate the prospect of liquidation, it doesn’t emphasize it in the same way Ch7 does, as that would only diminish the debtor’s potential to keep repaying the creditors.
- Repayment plan: Repayment plan: The indebted business is given the chance to create a detailed strategy to repay its creditors while staying operational. To ensure the plan is fair and equitable to all parties involved, first, it must be approved by the US Bankruptcy Court in the jurisdiction where the company is located (e.g. for San Diego it’s the Southern District of California branch).
- Continued operation: In most cases, businesses are allowed to remain operational during the Ch 11 process, enabling them to generate revenue and work their way back to financial stability.
- Automatic stay: Upon filing for Ch 11 bankruptcy, an automatic stay goes into effect halting all the collection activities, as well as related lawsuits and foreclosure actions against the debtor business, giving it the chance to reorganize without creditors’ pressure.
- Asset management: The business can sell off its non-essential assets in order to repay creditors – emphasis on “can”. The control of assets (essential and non-essential), as well as the core operation, remains in the hands of the debtor throughout the Chapter 11 process.
Finally, Ch 11 offers creditors a significant degree of protection. A structured repayment plan, that is also overseen by the court, gives them security that they’ll recover a fair portion of their investment.
How long can you stay in Chapter 11?
There is no specified time limit for how long the business can maintain a Chapter 11 plan. Mostly it is determined on a per-case basis, considering specific circumstances and complexities involved. However, it is a general rule that the duration of the Ch 11 plan must strike a balance between:
- Commitment: Demonstrating to the court and creditors that there’s a sincere effort by the debtor to repay as much as realistically possible;
- Feasibility: Ensuring that the duration of the plan remains within a structure that makes it both viable and achievable.
That being said, the average duration of a Chapter 11 bankruptcy is 17 months, but it can range from as little as 6 months to 5 years (or more), based on the complexity of the case.
Which Chapter 11 bankruptcy attorney in San Diego should I turn to for assistance?
Bankruptcy Law Offices of Mark L. Miller are your top choice whether you’re looking to reap the maximum benefits of Ch 11 or seeking a viable alternative that offers solutions that would be just right for your unique circumstances.
With the expertise of the decades and tailored strategies, our experienced lawyers are uniquely capable of guiding you through every step of your journey toward reestablishing the profitability of your business. Connect with us today!