Who Do You Assist With Chapter 11 Bankruptcy?
A Chapter 11 bankruptcy is a multi-party case where the interests of creditors and debtors are affected by application of the Bankruptcy Code. For example, there may be a creditor that has a $150,000 judgment against an entity that remains unpaid; there may be a landlord who is trying to understand their rights after a tenant has filed for bankruptcy; there may be a secured party or bank that’s loaned money to a debtor with some ability to assert their security interest on assets. The Debtor may be an entity such as an LLC, corporation, or partnership that is trying to seek a resolution of debt through the Chapter 11 process. In the Chapter 11 context, an attorney wears many different hats depending on the goals and objectives of the parties they represent.
What Happens During A Business Bankruptcy?
A business bankruptcy involves an entity such as a partnership, LLC, or corporation that seeks to enter into a court-assisted resolution of their debt. In this process, they are given time deadlines for proposing a plan of reorganization. The details of the plan proposed depend on the nature of the debt and its legal priority vs other creditors. The Plan if confirmed by the Court a contract with creditors that complies with the bankruptcy code and functions is a mechanism for addressing the debt.
In a business bankruptcy, creditors have a right to vote on the plan proposed by the debtor. The whole process can be very fluid. Early on, however, it can be a very dizzying process in terms of the number of events that are happening at the same time. For example, pleadings filed by debtors seeking authorization to use funds, authorization to assume contracts, and authorization to reject contracts are addressed by the Judge. Depending upon the circumstances of a case, creditors who receive these notices or these pleadings really need to pay attention because their rights may be affected.
What Are Some Signs That My Business Should File For Bankruptcy?
There is at least one significant triggering event that leads to all bankruptcy cases. A cause could simply be insolvency. A manager may realize based on a review of their tax return and the prior quarter that they are in a cash burn and that a financial decline cannot be averted. Typically, one major event, such as one or more lawsuits or the termination of a major contract with a customer leads to a consideration of a bankruptcy option. Sometimes, tenants default on rent payments, which can promptly lead a landlord to file a summary disposition action for eviction and termination of the Lease. If that occurs, then the debtor will be out of business unless they reach a settlement with their landlord to address the outstanding obligations.
Oftentimes, there are multiple causes leading to the filing of a Bankruptcy case. A company may realize that there’s been trend indicating that the business is doing poorly. As a result, they may want to engineer a soft landing and liquidate through the bankruptcy process. Under such circumstances, they may file for a liquidating plan. In these circumstance that they may operate for several months and then reach a point where there’s business cessation decide to sell their company as a going concern in a Chapter 11 bankruptcy. They may realize that the process of the sale of the company to be approved under section 363 of the Bankruptcy Code would be a means to generate creditor interest and competitive bidding.
A manager of or majority stockholder in a business often has to address business obligations separate and apart from their personal financial obligations. In many cases—especially with small businesses—the debts are personally guaranteed by the founders of the company, the stockholders, or the managing members of the LLC. If the business has to file bankruptcy to try to reorganize and if the debts are not addressed in the business bankruptcy, then the creditors will have recourse against the individuals.
A credit application may require disclosure whether an individual that owned at least 10 percent stock in a business or entity that sought relief under the bankruptcy code or a relief under an assignment for benefit of creditors. This means that when applying for new credit, some individuals may have to disclose that they’ve been associated with a company that filed for Bankruptcy.
Get Information on Chapter 11 Bankruptcy In New Jersey, or call the Michael McLaughlin, LLC, for an initial consultation at (908) 373-8500 and get the legal answers you are seeking.