Business Bankruptcy, Chapter 11
Chapter 11 Bankruptcy In Minneapolis, MN
Chapter 11, found at 11 U.S.C. §§ 1101 to 1174, lets a business, or an owner of real estate investments, keep operating while it restructures its debts under the supervision of the bankruptcy court. Creditors are held back by the automatic stay, the business proposes a plan to repay what it can over time, and the court decides whether to confirm it.
How It Works
What Is Chapter 11Bankruptcy?
Whitlock Reyes LLP represents businesses and their owners in Chapter 11 from Minneapolis, for companies across the Twin Cities and greater Minnesota. The partners who run these cases read financial statements as closely as they read the Code, which helps when the case turns on the numbers.
Tobias Reyes
Name Partner, Whitlock Reyes LLP
Practice Areas
Who It Is For
Who UsesChapter 11?
Related pages
Operating businesses of any form, from corporations and LLCs to partnerships and sole proprietors, whose debts are too large or too tangled for a simpler chapter. It also serves owners of real estate that is carrying more debt than it earns, and individuals whose debts are above the limits for Chapter 13.
Small businesses that qualify should also look at Subchapter V, a streamlined form of Chapter 11 with fewer costs and no creditor veto over the plan.
Step By Step
How Does A Chapter 11Case Run?
The petition and the stay
Filing puts the automatic stay in place, which pauses most collection efforts and lawsuits against the business.
First-day matters
Early motions keep the lights on: using cash a lender claims, paying employees, and keeping key vendors supplied.
Operating under supervision
You keep running the business, but major decisions such as new leases, large contracts or asset sales need court approval.
The plan
The business has an exclusive window at the start of the case to propose its plan: which contracts stay, which costs go, and how debts are repaid.
Disclosure statement
Before creditors vote, they receive a document that explains the business and the plan in enough detail to judge it.
Confirmation
Creditors vote and the court decides whether to confirm the plan. Once confirmed, the business operates under its terms.
The Details
What Can A PlanChange?
| Topic | What to know |
|---|---|
| Contracts and leases. | Under 11 U.S.C. § 365 the business can keep the contracts and leases that work and reject the ones that do not, leaving the other side with a claim. |
| Secured debt. | Loans can be restructured over time, and the amount treated as secured generally depends on the value of the collateral. |
| Unsecured debt. | Trade creditors and other unsecured creditors are paid under the plan, often less than the full amount, as long as each receives at least what it would get in a liquidation. |
| Single real estate projects. | An owner of a single real estate project faces special, faster deadlines under the Bankruptcy Code, which is one more reason to call before the money runs out. |
In Detail
Chapter 11,Question By Question.
Who is in charge during the case?
In most cases the business keeps running under its current management as the debtor in possession under 11 U.S.C. § 1107. Management owes duties to creditors while the case is open, files monthly operating reports, and needs court approval for decisions outside the ordinary course of business, such as selling major assets or taking on new financing.
The United States Trustee oversees the administration of the case, and in larger cases an official committee of unsecured creditors is appointed and can hire its own professionals. A trustee replaces management only in limited circumstances, such as fraud or gross mismanagement.
What are the alternatives to Chapter 11?
Not every troubled business needs a bankruptcy case. Depending on the numbers and the creditors, an out-of-court workout with the main lender, a forbearance agreement, a sale of the business or of a division, or a planned wind-down may accomplish more at a lower cost. For a qualifying small business, Subchapter V is often the better court option, and some owners are better served by a personal Chapter 7 or Chapter 13 after the business closes. The first conversation weighs these against each other before anything is filed.
Why does an early call matter?
The most common regret we hear from owners is waiting. A business that calls while it still has cash, credit and a working relationship with its lender has room to negotiate, restructure or sell on its own terms. A business that calls after the last payroll has cleared usually has far fewer choices, and some of the choices that avoid bankruptcy altogether are already gone.
The same is true for real estate: a project that is behind but still funded can often be redirected, while one that has run dry tends to end in the lender's hands. We also advise owners on turnaround and workout questions before any filing, with an eye on what each step means for taxes and for any debt the owner signed for personally.
What should you bring?
The last two years of business tax returns and financial statements, a current profit and loss statement, a list of creditors and balances, your leases and major contracts, loan documents and any business debt you signed for personally, and anything a creditor has filed or sent. A rough monthly cash flow helps too.
Questions
Questions AboutChapter 11.
When to call us
The free first consultation is a working session on your numbers. By the end of it you know whether Chapter 11, Subchapter V, Chapter 7 or an out-of-court arrangement is the realistic path, and what the first month of that path looks like.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
(555) 014-2200Can my business keep operating during Chapter 11?
Generally, yes. That is the point of Chapter 11. The business keeps running while it reorganizes, with court approval needed for major decisions outside the ordinary course of business.
What is the difference between Chapter 11 and Subchapter V?
Subchapter V is a faster, simpler form of Chapter 11 for small businesses within its debt limit. It usually has no creditors' committee, and the court can confirm a fair and equitable plan without creditor approval.
What about business debt I signed for personally?
A business case does not automatically release an owner from business debt the owner signed for personally. How that debt is handled depends on the structure of the case and sometimes on a separate plan for the owner, so raise it at the first meeting.
Is Chapter 11 only for large companies?
No. Sole proprietors, small partnerships and real estate owners use it too, although many small businesses are better served by Subchapter V.
How long does a Chapter 11 case take?
It varies with the size of the business and how much creditors contest the plan. The business has an exclusive period at the start of the case to propose a plan, and many small cases now move faster under Subchapter V.
What does the court look at before confirming a plan?
Among other things, whether the plan was proposed in good faith, whether it is feasible, and whether each creditor receives at least what it would in a Chapter 7 liquidation. The requirements are in 11 U.S.C. § 1129.
Can a Chapter 11 case be converted or dismissed?
Yes. If a plan cannot be confirmed or the case is not moving, the court can convert it to a Chapter 7 liquidation or dismiss it, which is one reason the plan is built around realistic numbers from the start.
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