How Does Chapter 11 Work?

This type of bankruptcy won’t clear your debt, but it makes paying it off more manageable. This is done by proposing a debt repayment plan that demonstrates how your creditor will be repaid over time, amounting to a sum less than the total of what’s owed. This works because a creditor may be more inclined to accept some of the money they’re owed over the uncertainty of seeing any of it repaid. In some situations, a creditor may agree to accept less than the value of debt as payment but only if it can be immediately repaid.

There is no limit to how much debt you can owe to file for Chapter 11, which is why it’s commonly filed by businesses of all kinds or individuals with debt exceeding Chapter 13 limits (about $420,000 in unsecured debt and roughly $1.26 million in secured debt).

Creating a Successful Chapter 11 Repayment Plan

If you intend to file for Chapter 11 in Orange County, you will need to propose a debt repayment plan. This is no small task as you are likely dealing with substantial sums of money that your creditors will have a keen interest in reclaiming. You should only work with an experienced Chapter 11 attorney who has helped clients like you develop successful repayment plans.

Such a plan must demonstrate that it is:

• Feasible to pay creditors while covering other expenses with a sufficient revenue stream.
• A good-faith preparation within all applicable laws.
• Accounting for the best interests of the creditors, which may require proof that the creditor will receive at least as much in the debtor’s repayment plan as they would if Chapter 7 liquidation occurred.
• Fair and equitable

Any plan will bind the debtor and creditor to its terms. These may include payments at regular intervals by promising a portion of future profits, liquidation of assets, downsizing, and ever a merger or recapitalization.

Creditors, shareholders, and other stakeholders can voice their support or opposition to portions of a repayment plan or the entire document. Ultimately, however, the decision of whether or not to approve a plan will lay with a bankruptcy judge.

How Does Chapter 11 Bankruptcy Differ From Other Types of Bankruptcy

Chapter 11 bankruptcy differs from other types in the following ways: 

1. It's available to businesses and individuals with substantial debts
2. It focuses on reorganizing finances to allow ongoing operations and gradual repayment
3. Debtors retain control as a debtor-in-possession
4. A repayment plan is created, modifying debts and potentially selling assets
5. It offers more flexibility for negotiation, financing, and strategic decisions 
6. It's complex, involving reporting, court approvals, and creditor/stakeholder involvement. 
7. Chapter 11 enables restructuring while maintaining operations and control, but complexity and costs are typically higher than other bankruptcies.

Expert Chapter 11 Bankruptcy Support in Orange County

Because this type of bankruptcy is generally considered to be the most complex, you will need a capable Chapter 11 attorney to move you through the process and help you create a repayment plan. Financial Relief Law Center, APC’s attorneys have worked hard for businesses like yours in Orange County to make finding debt relief possible.

Learn More About Chapter 11 Bankruptcy

• Chapter 11: Guidelines for a Debtor-in-Possession
• The New Value Exception to the Absolute Priority Rule in Chapter 11 Cases

Contact us online to get a free consultation with an attorney who can tell you more about your options in Chapter 11. We have served business and individuals in Orange County for years.