A one-size-fits-all type of bankruptcy does not exist. Whether you are an individual or a business, Chapter 7 may benefit you. For other consumers, Chapter 13 may be your best bet. Still, for others, mostly businesses, Chapter 11 bankruptcy in Georgia is best suited for your situation and needs. Identifying which chapter of the bankruptcy code will provide optimal benefits to you or your business, however, is just the initial step of the bankruptcy process.
At Giddens, Mitchell & Associates, P.C., our Chapter 11 bankruptcy lawyer in Metro Atlanta will review the financial situation of your business and advise you according to your circumstances and preferences. For businesses, the stakes are high, and so we use our skills and resources to move our clients' interests forward timely and strategically. Contact our bankruptcy attorney today at 770-987-7007 to schedule a Consultation and get financial relief for your business.
What is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is a type of bankruptcy that allows debtors to restructure assets and debt and to make payments to creditors according to a reorganization plan. Filing Chapter 11 is voluntary, except when three or more creditors file a petition with the bankruptcy court and as a result, a business is forced to file.
Used mostly by partnerships or businesses, this type of bankruptcy benefits those who want to keep their business in operation while paying back creditors. Chapter 11 bankruptcy can take between six months and two years to complete.
Reorganization Plan and Process
Central to a Chapter 11 bankruptcy is the reorganization plan, which is basically an agreement between the debtor and the creditors. It often requires the business to downsize to free up assets or minimize expenses. The business is given time to develop a reorganization plan. This part of the process can take up to 18 months or longer between the time the initial plan is created and the time the creditors agree to it.
During the process to create an acceptable reorganization plan, several steps may occur.
- The initial proposal to reorganize debt is presented.
- A Section 341 meeting is held where creditors can question a business representative under oath about the business.
- Creditors submit modification requests.
- Negotiations are undertaken to create a modified reorganization plan.
- A vote is held where creditors decide to accept the plan or not.
- The court confirms the plan.
Once the reorganization plan is approved, the debtor must make payments accordingly.
Obstacles to Chapter 11 Bankruptcy
During the process to create a reorganization plan, creditors can argue that the business owner(s) or manager(s) has been mismanaging the company and its assets. A bankruptcy judge can respond by dismissing the creditors' claims or dismissing the bankruptcy petition.
Alternatively, a judge could convert the Chapter 11 petition to a Chapter 7 bankruptcy. Most often, however, creditors accept the reorganization plan. The possibility of a Chapter 7 bankruptcy is risky. Under this bankruptcy type, assets are liquidated. Many if not most creditors will not receive any of what they are owed.
Chapter 11 vs. Chapter 7
Chapter 7 bankruptcies are often referred to as “no asset” bankruptcies; there are no reorganization plans attached to this type of bankruptcy. Assets, if any, are liquidated unlike in Chapter 11 where the debtor remains in possession of assets (though some may be sold off to help pay creditors via the reorganization plan).
Chapter 7 is most common among consumers and sole proprietors, though businesses also use or are forced to file bankruptcy under this chapter.
Chapter 11 vs. Chapter 13
Some people get confused between Chapter 11 and Chapter 13 bankruptcies because Chapter 13 also allows reorganization. Chapter 13, however, allows plans that run between three to five years. Under a Chapter 13 reorganization plan, a trustee manages disposable income while under a Chapter 11 bankruptcy, the debtor remains in control of the business or assets, known as debtor in possession.
Chapter 13 is more common among consumers while Chapter 11 is more common among businesses.
Eligibility for Chapter 11 Bankruptcy
Most anyone or any business can legally file bankruptcy under Chapter 11, including:
- Limited liability companies
- Joint ventures
The nice thing about Chapter 11 is this: debt and income requirements or limitations are not applicable in most cases. The latter is sometimes why Chapter 11 may be best suited for an individual rather than Chapter 13 because Chapter 13 has debt requirements.
Below is a list of those entities or individuals who are not generally eligible for Chapter 11 bankruptcy.
- A governmental agency
- An estate
- A non-business trust
- A stockbroker
- A commodity broker
- An insurance company
- A bank
- An SBA-licensed small business investment company
- Any individual who has had, based on certain grounds, another bankruptcy case dismissed within the last 180 days
Who Should File for Chapter 11 Bankruptcy in Georgia?
Pretty much anyone but for the exceptions listed above can file for bankruptcy under Chapter 11, but that does not mean anyone or any entity should file using Chapter 11. You should weigh the benefits against the disadvantages. The pros and cons can help you understand if filing Chapter 11 bankruptcy is in your best interests and/or is aligned with your financial or business needs.
- Creditors must stop harassing the business to collect the debt.
- The business keeps operating under the same ownership or management.
- The business can still borrow money, obtaining loans with better terms than if not under Chapter 11 bankruptcy.
- Through reorganization, the business can terminate leases or other contracts that are not benefiting the company.
- Assets may be sold to raise money and pay debts.
- Chapter 11 takes less time than Chapter 13 bankruptcies.
- You can get a fresh start for yourself or your business at the completion of the bankruptcy.
- Bankruptcy 11 will not protect sole proprietors from creditors.
- It can be more expensive than other bankruptcies given the extent of legal representation needed.
- It takes longer than Chapter 7 bankruptcies.
- The business may need court approval to sell assets or take out loans.
- If not successful, the business may be forced into a Chapter 7 bankruptcy.
How Much Does It Cost to File for Chapter 11 Bankruptcy in Georgia?
The cost to file Chapter 11 bankruptcy in Georgia is based on the Bankruptcy Court Miscellaneous Fee Schedule (filing and administrative fees) and attorney fees. These fees are the same regardless of which state you file bankruptcy.
Chapter 11 filing fees change from time to time but are consistently around four times as much as Chapter 7 and 13 bankruptcy fees. Chapter 11 bankruptcy fees alone exceed a thousand dollars.
Debtors under Chapter 11 bankruptcy must also pay fees to the U.S. Trustee on a quarterly basis throughout the duration of the bankruptcy. These fees vary – depending on the amount of money or property disbursed under the reorganization plan – and range anywhere from $250 to $10,000 per quarter.
Also, legal representation is critical in a Chapter 11 bankruptcy––it can make all the difference in the outcome of the final reorganization plan. Legal fees, however, are often much higher in Chapter 11 bankruptcies because the extent of legal advice and services is much greater. You can expect to pay more, but that amount depends on the bankruptcy attorney and the services and benefits they provide.
How Can a Chapter 11 Bankruptcy Attorney in Metro Atlanta Help Me?
If you are considering Chapter 11 bankruptcy for yourself or a business, you should consider retaining competent legal representation. The right bankruptcy attorney will effectively provide important legal services, like advising you on, helping you with, or explaining:
- Bankruptcy law and procedures to follow
- Whether bankruptcy is the right path or if a better alternative is available
- Which chapter to file
- Whether and which debts can be discharged
- Whether or when to pay creditors
- Whether you can keep your home, business, or other property
- Tax consequences
- Drafting, organizing, and filing forms
- All other aspects of the bankruptcy process
A bankruptcy lawyer can help you stay on track, too, so that you timely and properly carry out the reorganization plan in a Chapter 11 bankruptcy.
What Happens if a Debtor Fails to Carry Out the Reorganization Plan?
As mentioned, the reorganization plan is the heart of Chapter 11 bankruptcies. To receive the full benefits of this type of bankruptcy and have qualifying debt discharged, the plan must be completed unless certain circumstances exist and a judge approves.
That said, if you fail to carry out the plan for any given amount of time, the Chapter 11 discharge still remains valid.
There is a caveat here: a trustee or creditor may accuse you of fraud, i.e., you fraudulently obtained a discharge by not fully carrying out the terms of the reorganization plan. In these cases, a trustee or creditor can request revocation of the discharge. If the court approves the request, your Chapter 11 bankruptcy fails. Failure exposes you to lawsuits and other collection actions.
Contact a Bankruptcy Lawyer in Metro Atlanta Today
At Giddens, Mitchell & Associates, P.C., we know how debt can impact an individual or business. If you have difficulty paying bills or your business has acquired substantial debt to the point it negatively affects the success of the business, speak to our bankruptcy attorney in Metro Atlanta today. You can fill out the online form or call us at 770-987-7007 to schedule a Consultation.