Personal and Business Bankruptcy: Chapter 7, Chapter 11, Chapter 13
Perhaps the most important part of a Chapter 11 bankruptcy is the planning that is done before even filing the bankruptcy petition. Chapter 11 bankruptcies have a notorious reputation for failing compared to other forms of bankruptcy. Recent figures from the Department of Justice show that only 33.2% of Chapter 11 bankruptcies were confirmed (accepted by creditors and bankruptcy judge) — and that’s a significant increase from the 1989 rate of 17%.
Putting sufficient thought and planning into your strategy before filing a bankruptcy petition is critical to convincing creditors and the bankruptcy judge to approve your plan. In my experience with Chapter 11 bankruptcies, there are three principle areas you need to think about and have a plan for prior to filing for bankruptcies:
1. How is Your Bankruptcy Going to be Resolved Successfully?
What is your game plan for getting your debts paid? Will you need to modify terms of your loans to extend payment periods or lower interest rates? Will you need to sell assets or close unprofitable stores or divisions? Will you need to refinance the debt with new creditors? Chapter 11 provides a great deal of flexibility and options for reorganizing your finances or operations. The bottom line is that creditors must eventually be paid and you must be able to demonstrate to a judge that they will get paid. You only have about three months (90 days) from the time you file your petition to submit a reorganization plan. After that your creditors can submit plans, and they aren’t likely to be as favorable toward you. The more planning you do before filing the easier it will be to meet this deadline with a credible plan that is likely to be confirmed (approved) by creditors and the bankruptcy judge.
2. What are Your Immediate Goals and Immediate Issues?
Usually there are many “emergency” issues that your bankruptcy attorney will need to deal with immediately after filing your petition for bankruptcy in order to maintain the status quo while a reorganization plan is developed. Will you need the court’s intervention to keep utility companies from turning off services? Will you need to pay wages owed to employees or debts to critical vendors that accrued prior to filing? Will you need to continue using cash accounts in day-to-day operations? You will most certainly need to hire an attorney and probably several other professionals, including a CPA. These sorts of things require the court’s approval and are usually dealt with in “First Day” motions. Your Chapter 11 bankruptcy attorney can help you determine what issues need to be addressed. Failure to plan adequately ahead of filing can greatly interfere with operations and could result in penalties and other problems.
Your list of First Day Motions should be part of a 90-day business plan that will show the court the steps you intend to take to keep your business (or personal financial affairs if filing as an individual) heading in a positive direction while you put your reorganization plan in place. A thorough, well-crafted plan will convince the judge to accept your petition and give you the time you need to negotiate and submit your reorganization plan. An experienced bankruptcy attorney who is well versed in Chapter 11 proceedings can help you develop a convincing 90-day plan.
3. How Much Can You Spend to Recover Financially?
You’ll need to have a budget for your bankruptcy process. You’ll need to hire professionals of various sorts and have other expenses. Just how much you’ll need depends on the nature of your situation and what must be done to resolve it. If the problem leading to bankruptcy is seasonal or cyclical and temporary, you’ll need enough to ride out the dry spell or develop a solution to counter it, such as a new product or service that is viable in the off season. If the problem is more fundamental, such as an outdated business model or service that relied on a now-defunct government program, your changes will be more extensive and more expensive.
Getting Help with Your Chapter 11 Pre-petition Planning
The Chapter 11 bankruptcy process is complex and requires high attention to detail. Make sure you get help with your pre-petition planning from an attorney with extensive experience in Chapter 11 procedures. An attorney who mostly handles Chapter 7 and Chapter 13 cases and does an occasional Chapter 11 case on the side may miss important details and planning points that could jeopardize your case and cost you more than necessary.
In Maryland, the practice of bankruptcy attorney John Burns emphasizes Chapter 11 reorganizations for both businesses and wealthy individuals. Put more than 20 years of bankruptcy law experience and in-depth familiarity with Chapter 11 rules to work for you. From planning to negotiations and execution, Mr. Burns can help you emerge from Chapter 11 bankruptcy in a strong financial position.
Call our office at 301-441-8780 to schedule an appointment.