A Chapter 11 Bankruptcy is usually a Business Bankruptcy. As previously stated, large debt loads can push a Chapter 13 into a Chapter 11. Corporations cannot go Chapter 13, only Chapter 11. Large corporations like Sears file Chapter 11 Bankruptcies. The rules are much more favorable for Creditors than Chapter 13.
Many Chapter 11 Bankruptcies are small business bankruptcies. There is no Trustee like in Chapter 7’s and 13’s. The Debtor is known as a Debtor in Possession and he/she/it (the Corporation) must submit Profit and loss Statements monthly to the U.S. Trustee’s Office.
Usually when a small business has problems between the owners or the buyer of a business has issues with the seller post sale, that small business may file a Chapter 11 Bankruptcy to stop the creditor from talking their inventory or accounts receivable or to stop an eviction proceeding. Many Chapter 11 Bankruptcy’s involving small businesses have Adversary Proceedings in them. An Adversary Proceeding is a lawsuit within the bankruptcy. Adversary Proceedings can occur in any chapter bankruptcy but are more prevalent in Small Business Chapter 11’s.
Approximately 90% of Chapter 11 Bankruptcies are converted to Chapter 7’s. They are very costly and remaining in compliance is difficult. They are usually a last step when a secured creditor is communicating with a small business’s clients and telling the clients that he is the Secure Creditor who has perfected his/her lien and that by paying the business they will still owe the Secure Creditor. At that time, most small businesses don’t have any other choice but to file a Chapter 11 to stop the Secure Creditor from interfering with the Debtors ability to do business. I have filed several Chapter 11’s and have the requisite experience necessary to file a Small Business Chapter 11 and successfully have a plan confirmed. This is something that can only be learned through experience. No one knows how a business’s accounts receivable clients will react to the filing until after the matter is filed. I know how to properly explain to client’s a Chapter 11 will be filed but it will not have any effect on their business dealings with the Debtor. This is something an Attorney only learns through experience. Call me if your having a problem with a secure creditor in your closely held small business. I can help.