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As soon as the petition is filed, you, as the businessowner, will be referred to as the ‘debtor in possession,’ which means you keep possession and control over your business while going through the reorganization process. You will remain a debtor in possession until your reorganization plan is either confirmed, dismissed, converted to a Chapter 7 bankruptcy case, or a Chapter 11 trustee is appointed. Not all cases involve an appointment of a Chapter 11 bankruptcy trustee. For the most part, filers remain a debtor in possession and continue to run the day-to-day operations of the business throughout the duration of the case.
Similar to a Chapter 7 or Chapter 13 bankruptcy case, the filer benefits from the automatic stay, which immediately goes into effect upon filing the petition. The automatic stay gives you a chance to breathe and halts all collection activity, repossession of property and foreclosures while the bankruptcy process is completed.
Filing a Reorganization Plan
In Chapter 11 bankruptcy cases, a plan of reorganization must be filed with the bankruptcy court, along with a disclosure statement within 120 days. The reorganization plan must include not only a classification of the various creditor claims but also must include a clear plan on how each class of claims will be handled. A reorganization plan can include plans to downsize the business, renegotiate debts, reduce operating expenses, and liquidate certain assets to repay creditors.
You as the individual filer has the exclusive right to file the reorganization plan within 120-days of filing. The U.S. bankruptcy court will then make the determination as to whether to approve your plan.
Meeting of Creditors and Creditors’ Committees
Traditional Chapter 11 cases involve a section 341 meeting of creditors, where creditors can ask you questions under oath regarding business operations, property, and the handling of the case. Additionally, creditors’ committees are also a unique aspect to Chapter 11 cases. These committees are appointed by the trustee and normally include unsecured creditors who hold the seven largest unsecured debts against you or your business.
Approval and Discharge of Debt
The next step in the process is for the bankruptcy court to approve your plan, also known as confirmation. Before approving the plan, the court must look at several factors before determining whether to confirm, but once this takes place, you begin the repayment process under the approved plan. Once the plan is completed by you, the bankruptcy court then officially discharges the debts.
How the CARES Act Has Expanded Access to Chapter 11 Bankruptcy
Chapter 11 bankruptcy has traditionally been an expensive and lengthy process, but with the passage of the Small Business Reorganization Act (SBRA) in February 2020, filing Chapter 11 has become a less expensive and more streamlined process. The SBRA added a feature to the bankruptcy code, titled Subchapter V, which was intended to make the Chapter 11 bankruptcy process quicker and less expensive for smaller businesses that would not have sought Chapter 11 protection previously. Under the SBRA, small businesses with debts totaling up to $2,725,625. could file for Chapter 11 bankruptcy. It also eliminated the requirement of the business owner to pay quarterly U.S. Trustee’s fees. The CARES Act increased that debt threshold to $7.5 million, making business bankruptcy a real possibility for even more small businesses.
Under Subchapter V, the filer must submit a reorganization plan within 90 days of filing for bankruptcy. Previously, the filer had to work with a committee of their unsecured creditors who had to review and approve the plan before going forward. However, under this new subchapter, the submitted plan will be approved so long as the filer allocates a certain amount of discretionary income towards repayment plans over the next three to five years.
Meanwhile, the business owner remains in complete control of the business, even if the plan of reorganization does not fully repay unsecured creditors- eliminating the ‘absolute priority’ rule which does not apply under Subchapter V. Not having a creditors committee in the bankruptcy case will also make the process less expensive. The court may approve the submitted plan, even if the creditors object, which is another change brought by the SBRA.
A consulting trustee will be appointed by the U.S. United Trustee Program to work with the businessowner throughout the case. The broadened threshold offered through the CARES Act is set to expire in 2021. Now is an excellent time for Central Florida small businesses to take advantage of these new protections under the CARES Act.
If you have questions on this topic or are a small business struggling with debt, call us today to schedule a free consultation. The Benenati Law Firm has eliminated nearly a billion dollars of debt for its bankruptcy clients, making the firm one of the top twenty filers of bankruptcy in the nation. We have helped thousands of individuals and businesses eliminate their debt and get a fresh start financially. The day you hire our firm, we will contact your creditors to stop the harassment and collection calls. We make our hours convenient for our clients and offer FREE digital sign-ups and consultations on Saturdays (9:00 a.m. – 3:00 p.m.) and throughout the week until 5:00 p.m. If you or your business are in a financial crisis and considering filing for bankruptcy, contact an experienced Orlando bankruptcy attorney who can advise you of all of your options.
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“I was very hesitant to go through the procedure of bankruptcy, especially at this late age of my life of the close to retirement years. Going through difficult personal health and family events made this very hard, yet every person I came in contact at the Law offices of Attorney Walter Benenati made me feel at ease. They were always quick to answer any questions. Even one time I was shocked I emailed the office and not even a couple of minutes later the attorney called to answer my question. My 17 year old son, was next to me and he was “mom did that just happen”? Every step of the way they were with me. They always informed me of any changes etc. So appreciated communication and help from Olga, Maria, Zumary, Stephanie, Jennifer and Chris. I am extremely grateful to Denisse B. & Attorney Claribel Acosta for helping me so at ease with the transitions and process of it all till the end. These girls rock!!! Great communication, Great Service, forever grateful for the blessing of the Benenati Law Office for this Season of my Life. Trust me , Attorney Walter Benenati was the right choice for me and it will be for you too.”
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The Benenati Law Firm is the best. I can’t speak highly enough about their staff. Walter and their team were excellent helping me in my case. They answer all questions, answer the phone immediately every time, and they offer an awesome price. They are very knowledgeable with all laws. I’m amazed how fast my case was handled and done. I will continue to to use the Benenati Law Firm in the future. I would definitely recommend to my family and friends. Thank you Benenati Law Firm for helping me restart my life.
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