How Chapter 11 Works And Why A Lawyer Is Important:
A bankruptcy case commences when a bankruptcy petition is filed with the bankruptcy court. Fed. R. Bankr. P. 1002. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements. 11 U.S.C. §§ 301, 303. A voluntary petition should adhere to the format of Form 1 of the Official Forms prescribed by the Judicial Conference of the United States. (Official Bankruptcy Forms can be purchased at a legal stationery store or they may be downloaded from the U.S. Court’s website. They are not available at the courthouse.) The voluntary petition will include standard information concerning the debtor’s name(s), social security number or tax identification number, residence, location of principal assets (if a business), the debtor’s plan or intention to file a plan, and a request for relief under the appropriate chapter of the Bankruptcy Code. In addition, the voluntary petition will indicate whether the debtor qualifies as a small business as defined in 11 U.S.C. § 101(51C) and whether the debtor elects to be considered a small business under 11 U.S.C. § 1121(e).
Upon the filing of a voluntary petition for relief under chapter 11 or, in an involuntary case, the entry of an order for such relief, the debtor automatically assumes an additional identity as the “debtor in possession.” 11 U.S.C. § 1101. The term refers to a debtor that keeps possession and control of its assets while undergoing a reorganization under chapter 11, without the appointment of a case trustee. A debtor will remain a debtor in possession until the debtor’s plan of reorganization is confirmed, the debtor’s case is dismissed or converted to chapter 7, or a chapter 11 trustee is appointed. The appointment or election of a trustee occurs only in a small number of cases. Generally, the debtor, as “debtor in possession,” operates the business and performs many of the functions that a trustee performs in cases under other chapters. 11 U.S.C. § 1107(a).
A written disclosure statement and a plan of reorganization must be filed with the court. 11 U.S.C. § 1121. The disclosure statement is a document that must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor’s plan of reorganization. 11 U.S.C. § 1125. The information required is governed by judicial discretion and the circumstances of the case. The contents of the plan must include a classification of claims and must specify how each class of claims will be treated under the plan. 11 U.S.C. § 1123. Creditors whose claims are “impaired,” i.e., those whose contractual rights are to be modified or who will be paid less than the full value of their claims under the plan vote on the plan by ballot. 11 U.S.C. § 1126. After the disclosure statement is approved and the ballots are collected and tallied, the bankruptcy court will conduct a confirmation hearing to determine whether to confirm the plan. 11 U.S.C. § 1128.
You may qualify for treatment as a small business bankruptcy or as a single asset real estate debtor (if you have no other business other than operating a single parcel of real property and activities incidental thereto), depending on the nature of your business and assets.
Determination of whether a debtor is a “small business debtor” requires application of a two-part tst. First, the debtor must be engaged in commercial or business activities (other than primarily owning or operating real property) with total non-contingent liquidated secured and unsecured debts of $2,000,000 or less. Second, the debtor’s case must be one in which the U.S. trustee has not appointed a creditors’ committee, or the court has determined the creditors’ committee is insufficiently active and representative to provide oversight of the debtor. 11 U.S.C. § 101(51D).
You must file a reorganization plan within 120 days of filing.