You know that bankruptcy is an option for getting out of debt, and you may be aware of the multiple types of bankruptcy that are available for individuals. The most familiar cases fall under Chapter 7 and Chapter 13, both of which involve the discharge of debt. There are different rules and proceedings for each, but the end result is wiping out qualifying debts. However, you might not realize that there is another form of bankruptcy that may suit your needs if you own a business. When you understand Chapter 11 bankruptcy in Athens, GA, you may find that it is an effective solution for handling debt.

Chapter 11 bankruptcy is a proceeding for companies that are struggling with debt, though individuals who own an interest in the business may benefit as well. Through the process, you can reorganize and restructure debt while enjoying a break from creditor efforts to collect. Chapter 11 is much more complicated than individual bankruptcies under Chapter 7 and Chapter 13. Still, you can protect your business, safeguard your interests, and get control over debt by completing the case.

Because of the complexities of Chapter 11, retaining legal representation is wise. Having a Georgia Chapter 11 bankruptcy attorney on your side ensures a smooth process. In addition, it is helpful to review some basics on understanding Chapter 11 bankruptcy in Athens, GA and what you need to know.

Comprehensive Look at US Bankruptcy Laws

The media frequently reports on the nature of consumer debt in the US, with the amount of debt reaching skyrocketing levels in recent years. However, there is not as much attention on the increases in debt taken on by commercial entities, particularly small businesses. When a company cannot meet its financial obligations, creditors will come calling. Some fall into debt because of economic downturns, while others face difficult times with changing markets and consumer demand.

When a business entity falls into debt, owners have a bankruptcy remedy through Chapter 11. These filings have been on the rise in recent years, but a massive spike in cases is linked to the COVID-19 pandemic. The American Bankruptcy Institute (ABI) reports that there was a 141 percent increase in Chapter 11 filings from November 2022 to Nov 2023, a possible result of economic stimulus money running out.

Many companies qualify for debt relief under Chapter 11, a type of bankruptcy that bears some characteristics of Chapter 7 and Chapter 13 for individuals. Still, the rules are very specific and strict, so Chapter 11 cases tend to be extremely complicated.

Chapter 11 Bankruptcy Overview

In sum, Chapter 11 is a form of bankruptcy that offers the company help with overcoming debt, while still allowing the owner to operate the company to make it viable again. There are several points that you should note if you are considering filing for Chapter 11.

1. As with other bankruptcy cases, the automatic stay goes into effect immediately when you file your bankruptcy petition. Creditors are barred from attempting to collect debt through a lawsuit, liens, and other legal action.
2. The owner of the company becomes a Debtor in Possession, which means the stakeholder filing on behalf of the business will continue to run it. Bankruptcy laws recognize that the bankruptcy trustee likely does not have the expertise, experience, and goodwill to operate the business. The best opportunity to turn things around for the entity will be having the same owners run it, with supervision and oversight by the bankruptcy court.
3. Chapter 11 does include a reorganization and repayment plan to pay back creditors. The arrangement may involve adjusting interest rates, extending due dates, and many other options. The objective is to develop a debt repayment plan that will satisfy the interests of the filing company, creditors, and the court.

Comparing Chapter 11 to Chapters 7 and 13

One of the first factors that separates Chapter 11 from other bankruptcy cases for individuals is the cost. The filing fees for Chapter 7 are $338 and $313 for Chapter 13. To get a Chapter 11 case started and put the automatic stay into effect, you must pay $1,176 as a filing fee and $571 as a miscellaneous fee. Plus, a Chapter 11 case may take 6 months to 2 years to resolve, depending on the details of the debt repayment plan. This type of bankruptcy will remain part of your credit history for 10 years.

Some additional comparisons may help explain Chapter 11.

• In a Chapter 7 case, a person can get out of debt if they meet the eligibility rules. Their qualifying debt is discharged entirely, without any further obligation to pay creditors. In Chapter 11, there is the option of eliminating some types of debt as well. However, these cases are similar to Chapter 7 as far as liquidation. With the debt repayment plan, company owners will usually need to do some downsizing. They may need to sell assets and reduce expenses.
• The core of a Chapter 13 case is the debt repayment plan, just as it is for Chapter 11. Though every case is different, the debtor company is usually able to restructure debt and pay less than the total amount due.

Chapter 11 for Small Businesses 

Under previous versions of the US Bankruptcy Code, Chapter 11 involved an extremely expensive process that only large companies could afford. New rules make it more suitable for small businesses, specifically Subchapter V of Chapter 11. Removing certain restrictions and legal requirements enables these cases to move quickly through the process, leading to lower costs. In addition to statistics on commercial bankruptcies, the ABI reports that Subchapter V elections increased 79 percent from 2022 to 2023.

To take advantage of Subchapter V benefits and support your business, retaining a Chapter 11 bankruptcy lawyer in Georgia is crucial. Some basic points may help you realize if it may be a solution for your company.

• To qualify, you must be a small business debtor. Your company cannot have more than $3,024,725 to file.
• With Chapter 11 cases, there is a creditors’ committee that serves the interests of creditors. Member fees are paid at the debtor’s expense. When you proceed under Subchapter V, no such committee is appointed and you save money.
• You must submit additional documents under Subchapter V that are not required for other Chapter 11 cases. Examples include your balance sheet and a cash flow statement.
• The process under Subchapter V might seem more relaxed without a creditors’ committee, but there is still significant oversight from the bankruptcy trustee.

Basic Steps in the Chapter 11 Bankruptcy Process

To begin the case, you will file a Chapter 11 bankruptcy petition along with all necessary schedules. You must be prepared to decide to file under Subchapter V at this point. In addition, your bankruptcy petition will need to include:

• A list of assets and liabilities of the company;
• An itemized disclosure of the entity’s debts and expenses;
• All details on existing contracts and leases to which the business is obligated; and,
• A statement of financial affairs that meets the bankruptcy rules.

A key part of the process for Chapter 11 is developing, submitting, and finalizing the plan of reorganization. Upon filing, the debtor has 4 months to file a proposed plan to be reviewed by the bankruptcy trustee, creditors’ committee, and creditors. After this period and any extensions granted by the court, creditors may submit their own proposed plan of reorganization. To increase the chances of your plan being confirmed by the bankruptcy court:

• It must be feasible, in the sense that you will be able to complete it.
• Your plan of reorganization must be prepared in good faith, as opposed to obtaining gains for some unlawful reason.
• You must ensure that your plan works to the best interests of creditors, such that they would probably receive the same amount as if you filed Chapter 7 or Chapter 13.
• The plan of reorganization must be fair and equitable, a factor that relates to secured creditors getting paid at least the value of the collateral you pledged.

Reasons to get Legal Help from a Georgia Chapter 11 Attorney

This overview of Chapter 11 and summary of Subchapter V are useful, but countless details require specialized knowledge of bankruptcy laws. Retaining an Athens, GA Chapter 11 lawyer is a top priority for business owners, especially in the early planning stages before you file. These cases are closely connected to Chapter 7 and Chapter 13 bankruptcy for individuals. If you have provided any personal guarantees concerning your company, you need solid legal counsel to determine the best fit.

There is no time limit on a Chapter 11 case, but you certainly seek an efficient process that saves costs. Having a bankruptcy attorney avoids mistakes that can lead to delays, and representation is critical when working with creditors, the creditors’ committee, and other interested parties. With a lawyer’s help, you can focus on your tasks as a Debtor in Possession to get your company back in good standing.

Count on an Athens, GA Chapter 11 Lawyer to Assist with Bankruptcy

It is important to understand how Chapter 11 bankruptcy works if you are considering options that will help your business out of debt while protecting your interests. Without a legal background, you may not appreciate how the detailed rules can have a major impact on your case. You can trust our team at Morgan & Morgan, Attorneys at Law, P.C., so please contact our firm in Athens, GA.  We are happy to set up a free consultation with a skilled Georgia bankruptcy lawyer who will advise you.

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