For more than 20 years the New Jersey bankruptcy lawyers at LoFaro & Reiser have been assisting businesses and individuals in Chapter 11 bankruptcy filings brought in the United States Bankruptcy Court for the District of New Jersey, which has three venues in Newark, Trenton and Camden.
What is Chapter 11?
Chapter 11 is a chapter of the United States Bankruptcy Code that permits reorganization, which can include an orderly liquidation of business or personal assets as part of a Chapter 11 plan. Chapter 11 bankruptcy is available to every business whether organized as a coporation, partnership, limited liablity company or sole proprietorship. In addition, Chapter 11 is available to individuals.
Chapter 11 in General
When a business is unable to service its debt or pay its creditors, the business or its creditors can file a Chapter 11 case. Inn most instances the Chapter 11 debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the Bankruptcy Court and the Office of the United States Trustee.
Chapter 11 bankruptcy affords businesses and individuals a number of mechanisms to restructure. A Chapter 11 debtor can acquire financing and loans on favorable terms by giving new lenders first priority on the business's earnings. The Bankruptcy Court may also permit a Chapter 11 debtor to reject and cancel contracts and leases that have become too burdensome.
The filing of a Chapter 11 bankruptcy petition creates an automatic stay under Section 362 of the Bankruptcy Code that prevents creditors from continuing with lawsuits and other collection activities. The purpose of the automatic stay is to give the debtor some "breathing room" to reorganize. While the automatic stay is in place, creditors are stayed from any collection attempts or activities against the Chapter 11 debtor, and most litigation against the debtor is stayed or put on hold until it can be resolved in bankruptcy court, or resumed in its original venue.
Chapter 11 Plan
Chapter 11 usually results in reorganization of the debtor's business or personal assets and debts, but can also be used as a mechanism for liquidation. Debtors may "emerge" from a chapter 11 bankruptcy within a few months or within several years, depending on the size and complexity of the bankruptcy. The Bankruptcy Code accomplishes this objective through the use of a bankruptcy plan. The debtor in possession typically has the first opportunity to propose a plan during the period of exclusivity. This period allows the debtor 120 days from the date of filing for Chapter 11, to propose a plan of reorganization before any other party in interest may propose a plan. If the debtor proposes a plan within the 120-day exclusivity period, a 180-day exclusivity period from the date of filing for chapter 11 is granted in order to allow the debtor to gain confirmation of the proposed plan. With some exceptions, the plan may be proposed by any party in interest. Interested creditors then vote for a plan.
Chapter 11 Plan Confirmation
To emerge from Chapter 11 the debtor must obtain confirmation of a Chapter 11 plan. If the bankruptcy judge approves the reorganization plan and if the creditors all agree the plan can be confirmed. If at least one class of creditors votes against the plan and thus objects, the plan may nonetheless be confirmed over their objection provided the plan does not discriminate against that class of creditors, and the plan is determined to be fair and equitable to that class.
Upon confirmation, the Chapter 11 plan becomes binding and identifies the treatment of debts and operations of the business for the duration of the plan.
If a plan cannot be confirmed, the court may either convert the case to a liquidation under chapter 7, or, if in the best interests of the creditors and the estate, the case may be dismissed resulting in a return to the status quo before bankruptcy. If the case is dismissed, creditors will look to non-bankruptcy law in order to satisfy their claims.
Free Consultation with Experienced New Jersey Chapter 11 Bankruptcy Counsel
At LoFaro & Reiser our New Jersey bankruptcy lawyers understand the pressures brought about by financial problems. Contact our NJ bankruptcy law firm today to schedule a free initial consultation about a Chapter 11 bankruptcy filing in the United States Bankruptcy Court for the District of New Jersey. Our experiended bankruptcy attorneys are here to help you.