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Chapter 11 reorganization is a procedure to "reorganize" (i.e., compromise) the debts of ongoing businesses and, less commonly, of higher income/net worth individuals. It is a much more complicated and time-consuming process than a Chapter 7 bankruptcy. The U. S. Trustee's office, the Unsecured Creditors' Committee (if any) and the Bankruptcy Judge assigned the case are much more involved. The active period of the case will take anywhere from several months to several years. However, Chapter 11 can provide highly satisfactory relief in certain asset/debt situations.

Upon the filing of a Chapter 11 Petition, a new legal entity is created known as the "Debtor in Possession" (the "DIP"). The DIP is automatically given protection from creditors, who cannot pursue collection in state court or exercise certain default remedies they would otherwise have. The DIP operates its-his-her business under Bankruptcy Court and United States Trustee supervision while negotiating a Plan of Reorganization (the "Plan") with secured, priority unsecured, and general unsecured (trade) creditors. The largest trade creditors may form a Creditors' Committee to negotiate terms of the Plan with the DIP. In a best case scenario, the Plan will be negotiated with involved creditors and be ready for filing with the Petition or not later than 4 to 6 months after the Chapter 11 case is filed.  The 2005 Act imposes numerous new duties on the DIP, the U. S. Trustee, and the Court.  It requires, for "small business" debtors, that a Plan be filed by the debtor within 300 days of the filing date.  It sets an absolutely nonextendable deadline for non-small business debtors to file a Plan within 18 months from the filing date.

The 2005 Act "means testing" feature will presume a Chapter 7 filing as "abusive" for certain above-average income individuals.  If these individuals have more than $1,010,650 of secured debt or $336,900 of unsecured debt as of 2008, they are ineligible for Chapter 13.  Thus Chapter 11 will be the only available relief.  To be affordable, future individual and small business cases will resemble a "Chapter 13 on Steroids", with recyclable, pre-packaged, standard-form Plans and Disclosure Statements.  Prior to 2006 Mr. Clarke obtained Chapter 11 discharges for many high-income/failed business individuals and is quite familiar with the special issues these "niche debtors" bring to the table.

For the Court to confirm, or approve, the Plan and make it binding on creditors, a majority of impaired, or affected, creditors must vote to accept the Plan. Nationwide, the vast majority of DIPs fail to achieve Plan confirmation within 12 to 18 months of filing. These cases are either converted to Chapter 7 liquidation or dismissed, whichever the Court feels is in the best interest of creditors.  Or, if an individual debtor requests, the Court may convert the Chapter 11 case to one under Chapter 12 or 13.

To be a successful DIP, a business entity should have adequate working capital and profitable operations from the filing date forward. Many hours of hourly-rate attorney time are needed to properly prepare, file, negotiate, draft, confirm and complete a Chapter 11 reorganization. After the initial retainer is used up, the DIP attorney is unlikely to be further compensated unless and until the reorganization is successfully concluded. For this reason, experienced DIP attorneys will require a substantial Initial Retainer before agreeing to file an entity's Chapter 11 case. For more information, see Mr. Clarke's Fees page.

Continue reading through this site, including checking out some of the links on the Bankruptcy Information Center and Web Resources pages to answer more of your questions about Chapter 11 reorganization cases. When you are ready, fill out the Business or Consumer Debtor Analysis Form and submit it. The firm will thereafter contact you to discuss the specifics of your case.