Chapter 11 Bankruptcy Attorney in Amarillo, Texas

Filing for bankruptcy is never an easy choice. But, despite the perceived finality of bankruptcy, when filing under Chapter 11, you have a unique opportunity to keep your business open and restructure it to not only pay off creditors, but to set yourself up for success in the future.

In 2020, Texas had the highest rate of Chapter 11 filings in the country, including giants like Neiman Marcus and JCPenny, both of whom were able to restructure their business and stay afloat. They were able to do this by taking advantage of the Chapter 11 reorganization terms. If this is a viable option for you, Swindell Law Firm in Amarillo, Texas can help.

What is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy, often referred to as “reorganization bankruptcy,” is a restructuring option for individuals and businesses that need to declare bankruptcy, but will be in a better position to pay off creditors by remaining operational than by liquidating their assets. Chapter 11 is considered the most complex and expensive of the bankruptcy options. Though it’s most often used by larger businesses who can afford the legal fees and time that goes into it, it’s now a viable option for smaller businesses thanks to a recent change in Chapter 11 regulations under the Small Business Reorganization Act of 2019. This is known as subchapter 5: a more affordable, streamlined, chapter 11 case for small businesses and individuals.

As opposed to filing for Chapter 7 which might involve the sale of non-exempt assets that can't be corrected, Chapter 11 allows for reorganization that’s in the best interest of your creditors and will result in a more lucrative deal than traditional bankruptcy. However, to complicate things, your creditors have an active say in which reorganization plan is approved.

Qualifying for Chapter 11

To qualify for Chapter 11, you must show that your creditors will fare better by keeping your business operational than they would with a Chapter 7 filing. Failure on the part of the debtor to prove feasibility may result in a dismissal or a conversion to a Chapter 7. An individual can also file for Chapter 11, but it is usually reserved for businesses. Individuals typically—but not always—file for Chapter 7 or Chapter 13 bankruptcy instead.

The Process of Chapter 11

A typical Chapter 11 bankruptcy can take anywhere from a few months to a few years depending on the size of the business and amount of debt. Regardless of the time frame, the process is generally the same:

1. Automatic Stay: After you file your petition with the bankruptcy court and it’s approved, the court will grant an automatic stay. This puts a freeze on any debt collection from creditors.

2. Debtor in Possession: Typically, the owner will be declared the “debtor in possession,” meaning they’ll continue to run their business and control their assets. In some cases, the court will appoint a trustee to act in this role.

3. Creditor Committee: The court appoints a creditor committee made up of the largest creditors affected by the bankruptcy to make decisions on behalf of all creditors. In many chapter 11 cases, however, a creditor committee is not set up.

4. Disclosure Statement: The debtor must submit a disclosure statement outlining all assets and liabilities, creditors, and an overview of their financial affairs. The court must approve this statement before a reorganization plan can be accepted. However, it's important to note that for a debtor in a subchapter V case, a disclosure statement is not required.

5. Confirmation and Implementation of Plan: The court holds a confirmation hearing to ensure there are no objections to the plan and that it’s been prepared in good faith. The debtor in possession may then proceed with periodic evaluations to ensure the plan is implemented correctly and creditors are receiving payments.

Debtor & Creditor Disputes

What often causes Chapter 11 bankruptcies to take so long are disputes between the debtor and creditors, which often results in major legal fees. A lawyer with experience in bankruptcy law can be instrumental in helping you move forward in an efficient manner that saves both time and money.