Commercial Reorganization & Bankruptcy

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There Are Options

Chapter 11 Reorganization.

A viable business that may be profitable if it were not for overwhelming accounts receivable may file a Chapter 11 reorganization proceeding.. A business that files a Chapter 11 case continues to operate while attempting to restructure its accounts receivable. A Chapter 11 is usually beneficial to both the business and to its creditors, because creditors will receive more than they would if the business was closed and liquidated.

What Happens Next

When a business files a Chapter 11 bankruptcy, there is an automatic stay, meaning that the creditors cannot take any action against the business. Since the business continues to operate in the ordinary course of business, in the absence of fraud, no trustee is appointed and the business becomes a “debtor-in-possession.” The debtor-in-possession is given an opportunity to formulate a plan of reorganization that must be approved by the court and by a majority of the business’ creditors.

If a plan is approved by the creditors and is confirmed by the court, it binds both the debtor and the creditors to its terms of repayment. Under the plan, the debtor-in-possession can reduce debts by repaying a portion of its obligations and discharging others. It can also terminate burdensome contracts and leases, recover assets, and rescale operations to return to profitability.

Under a Chapter 11 business bankruptcy, a business normally goes through a consolidation period and comes away with a reduced debt load. Plans can call for repayment out of future profits, sales of some or all of the assets, or a merger or recapitalization. Generally, the plan of reorganization must provide for paying creditors at least as much as they would have been entitled to be paid in a Chapter 7 liquidation proceeding.

Chapter 7 Bankruptcy

Filing Chapter 7 bankruptcy does not automatically discharge the corporation.  This process is designed to liquidate the company’s assets and pay its creditors.  Since exemptions are not available in a business bankruptcy, all assets of the corporation or LLC are sold and the proceeds distributed among its creditors according to priority.

The easy and orderly liquidation of the business makes it attractive when dissolving a corporation.  When the corporation or LLC files for Chapter 7, it becomes the duty of the bankruptcy trustee to sell off its assets and pay its creditors.  This means that the owners don’t have to go through the hassle of settling up with the company’s creditors.

The Schreiber / Cohen, LLC. Difference:

The lawyers of Schreiber/Cohen are experienced representing Chapter 7 & 11 debtors, Official Committees of Unsecured Creditors, Official Committees of Equity Security Holders, and Secured and Unsecured lenders.