Chapter 11 Bankruptcy Law
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According to Chapter 11 bankruptcy law, various business structures, such as partnerships, sole proprietors and corporations, can have their debts reorganized with the hope of being able to repay them. The entity which is filing for bankruptcy, referred to as the debtor, must submit a bankruptcy claim form to the court to petition for relief for the debts as allowed through the Federal bankruptcy code.
The Chapter 11 law requires that the business filing for brokeness, must provide full financial disclosure to the bankruptcy court. This means that the organization, or their attorney, must provide a complete and detailed list of all of the company's assets, all of the liabilities and a complete statement of the financial status and affairs of the entity.
Unlike other types of bankruptcies, according to Chapter 11 law, the debtor is able to act as his own trustee. In Chapter 7 and Chapter 13 bankruptcy cases, the court appoints a trustee. When a debtor acts as a trustee in a Chapter 11 bankruptcy, it is known as a "debtor in possession" because the trustee maintains possession of the property. However, the court is able to appoint a different trustee to the case if there is just cause shown, such as in the case of mismanagement of the business entity.
About a month after the point that they file bankrupt, the debtor and their lawyer are brought into a meeting which includes the creditors that are owed money by the company. In addition to this initial meeting, Chapter 11 bankruptcy law also requires that the company supply the creditors with monthly reports which details the operations of the company. These reports are to include the income and expenses during the month, the balance sheet, and the profit and loss statement for the company.
Chapter 11 law allows for the debtor to file a financial plan during the first four months after a new bankrupt filing is submitted to the Federal bankruptcy court. After that time, the creditors of the company are allowed to submit filings of their plans.
The Chapter 11 law also requires that the plan submitted by the debtor includes a disclosure statement that goes into detail of company's financial situation and future plans. Some of the areas that are disclosed are the following: a summary of the company history and the primary cause that necessitated filing for brokeness; the company's assets and liabilities; the income and the expenses of the operation; a description of the company's treatment of their creditors; an analysis of asset liquidation; projections of future earnings; expected tax consequences; a discussion of various options open to the entity; and finally, the plan for repayment of the debts.
Chapter 11 law places the various creditors who have similar kinds of claims, such as secured or unsecured, into a particular class of creditor. Those creditors who have "impaired" claims are able to vote on the new bankrupt reorganization plan. A class of creditor is considered impaired if any of it's legal rights to recover the debt are changed by the Chapter 11 plan. In order for a plan to be approved by the court, the majority of the voting creditors must give their approval for the plan and these votes must represent at least two-thirds of the outstanding dollar amount in creditor claims.
Under the Chapter 11 bankruptcy law, the reorganization plan often entails the debtor staying in business and making repayments from their future income, from new loans, or from the sale of assets. Creditors with priority claims in the case, which includes taxes owed, must be paid in full. Secured claims are also required to be fully paid, and with interest. The remaining unsecured, non-priority claims are paid a dividend that is at the very least equal to what they would have received under a Chapter 7 bankruptcy.
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