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Chapter 11 Bankruptcy in California

Chapter 11 bankruptcy is a way for corporations to reorganize and restructure their debt. It’s a way to help businesses survive and get a new start. Here’s an overview of this type of bankruptcy. If you are a small business needing to restructure your debt, contact Mohsen Parsa, a trusted attorney in Los Angeles and Orange County, to discuss your financial situation and determine what’s the best next step for you.

What is Chapter 11 Bankruptcy?

Chapter 11 is a form of bankruptcy involving the reorganization of a business’s debt and assets. The debtor business must create a repayment or, rather, reorganization plan, and if that plan is followed through, the remaining debt will likely be discharged. The terms of the plan, however, must be fulfilled. And if fulfilled, then a Chapter 11 bankruptcy can benefit you in more than one way, including reducing interest rates and reducing monthly payments.

This type of bankruptcy is the most expensive to file and can be quite complex. Before filing Chapter 11 bankruptcy, it is important to carefully analyze and explore all other options a business may have with regard to its debt. If Chapter 11 bankruptcy is the right course of action, it has the potential to help businesses to secure a solid financial footing again.

Who Can File Chapter 11 Bankruptcy?

Corporations, partnerships, and sole proprietors can file Chapter 11 bankruptcy. Chapter 7 and Chapter 13 bankruptcies are more appropriate for individual filers.

In some cases, however, an individual can file a Chapter 11 bankruptcy to reorganize debt if that person does not want to liquidate assets under a Chapter 7 bankruptcy and has too much debt for a Chapter 13 bankruptcy. Thus, aside from corporations, many pro-athletes and celebrities will file for bankruptcy under Chapter 11.

How Does Chapter 11 Bankruptcy Work?

During a Chapter 11 bankruptcy, the debtor continues to operate the business, but the bankruptcy court must approve all major decisions the debtor business makes. A trustee may also be appointed to help manage the business to prevent things like fraud and dishonesty.

To start the process, either the business makes the decision to file so that it can restructure its finances to pay bills or three or more creditors file a petition with the bankruptcy court. Once the petition is filed – either by the business itself or three or more creditors – creditors are temporarily prohibited from taking any action.

The business has up to four months or so to develop a reorganization plan (sometimes the business can be granted up to 18 months to develop a plan). If the business doesn’t propose a plan, the creditors can propose their own reorganization plans.

A reorganization plan is essentially a contract between the business and the creditors and outlines how debt will be repaid, among other obligations. Part of the plan often is negotiating debt and downsizing the company so that expenses are reduced to free up assets for repayment. Plans can also include liquidating all or some assets.

Once the business files the plan, creditors vote whether or not to accept it. If the creditors do not accept it, the debtor business can as the judge to force the creditors to accept it.

The debt included in the reorganization plan includes:

  • priority debt
  • secured debt
  • unsecured debt.

Contact a Chapter 11 Bankruptcy Attorney in Los Angeles Today

If your business is financially hit, it may be a good time to think about restructuring or reorganizing your debt. Contact Mohsen Parsa, a resourceful and trusted attorney in the Los Angeles area, to discuss your business debt and to determine if Chapter 11 bankruptcy is the right option for you.