FAQ'S BY BUSINESSES

Q. What are the benefits of a Chapter 11 filing?
A. There will be a stay of all claims upon the filing of a bankruptcy petition?

Q. Will I be able to operate my company when it is in bankruptcy?
A. Yes, the presumption under the Bankruptcy Code is that the debtor company will remain in possession of its assets and operate its business.

Q. Is this always the case?
A. Under exceptional circumstances the court will appoint a trustee to operate the business.

Q. What is different when my company files for bankruptcy under Chapter 11?
A. You will need to open a new bank account under the name "Debtor in Possession." You will have to maintain comprehensive insurance on your business and file monthly operating reports with the court. Your company cannot pay any of its pre-petition debts except under a plan of reorganization approved by the court and monthly financial reports must be filed. If your company has given a security interest in your cash and receivables, then you will have to obtain permission from the court to use the cash generated from your business while you operate under Chapter 11.

Q. What might happen if I do not do these things?
A. The court could convert the case to Chapter 7 and appoint a trustee to liquidate the assets of the company.

Q. How does the new bankruptcy law affect a company designated as a “small business”, which
files for Chapter 11?
A. Among other things, the new law has some stringent provisions relating to the filing of monthly operating reports. If the debtor misses a reporting deadline and can not prove a reasonable justification, the court will dismiss or convert a case to Chapter 7 upon the application of any party in interest.

Q. How long would I able to remain in Chapter 11 if my company is considered a “small business?”
A. The new law requires that a plan be filed no later than 300 days after filing.

Q. Will it be necessary to obtain the approval of my creditors to a plan of reorganization?
A. Yes, at least one class of 'impaired" creditors must approve the plan and the plan must meet certain other conditions.

Q. What is an "impaired creditor"?
A. Creditors whose position has been changed in the plan. For example, if you owe your unsecured creditors $500,000 and your plan provides for payment to the unsecured creditors of $100,000, that class is impaired.

Q. What if I cannot obtain the approval of at least one impaired class of creditors?
A. Then your plan may not be confirmable

Q. What is the risk of filing a Chapter 11?
A. At a certain point the court may convert the case to Chapter 7.

Q. Will any one be overseeing the case besides the judge.
A. Yes. For example, in the Bankruptcy Courts for the Southern and Eastern District for New York, the office of the US Trustee will review the operating reports and oversee the case.

[ Back to Top ]