Many individuals and businesses face financial challenges because of one situation or the other. When running a business and you reach a point where you cannot service your loans or pay your creditors, you might consider filing a bankruptcy petition. A bankruptcy petition aims to assist both you and your creditors in coming up with a viable plan to settle the debt.
With a bankruptcy petition, you will need an experienced bankruptcy attorney’s services during and after the plea. At Los Angeles Bankruptcy Attorney, we will have your back when it comes to bankruptcy matters. With our experienced attorneys, we will strive to make the entire process understandable and as smooth as possible.
Your Aliso Viejo bankruptcy attorney will review your case and recommend the best possible way to settle your debts. We will check if you are in a position to work out a reorganization plan (chapter 11, 12, and 13) or have your assets liquidated (chapter 7). Once you have understood the legal options available to you, our attorneys will help you file a bankruptcy petition.
When your Aliso Viejo bankruptcy attorney files your bankruptcy petition under chapter 7, your business operations cease. The federal court will then appoint a bankruptcy trustee who will sell your company’s assets and use the proceeds to pay off your company’s debts.
Your company’s debts may involve:
After liquidation, stockholders may recoup some of their investment back, but it is usually a small amount. Stockholders should note that the value of their stock diminishes to a minimal value after a bankruptcy.
Under chapter 7, nonexempt assets are liquidated to settle your debt and are usually referred to as “chapter 7 business bankruptcy” or “chapter 7 consumer bankruptcy”. The duration for bankruptcy proceedings is generally between 3-6 months.
Unsecured debts (debts that don’t have collateral) are usually discharged under chapter 7 bankruptcy. In a liquidation process, you will keep some exempt assets in California, like personal jewelry, clothes, furniture, car, among others.
On the other hand, secured debts are treated differently. The creditor may use your collateral to settle the debt. When it comes to secured debts, your Aliso Viejo bankruptcy attorney should advise you to take one of the following options:
- You can decide to allow your creditors to repossess the property that secures your debt.
- Offer to continue paying off your debt in installments, or
- Pay the creditor a total sum that is equivalent to the value of the collateral.
This bankruptcy is usually referred to as reorganization bankruptcy, where a company comes up with a plan to pay off its debt while still in operation. Under this bankruptcy, your business has the opportunity to pay off its debt and make profits once again. With a Chapter 11 bankruptcy, you will need to develop a management plan executed under the federal bankruptcy courts.
Your Aliso Viejo bankruptcy attorney will file a bankruptcy petition, which will ensure your business receives protection against its debts under Chapter 11. This bankruptcy petition will require your business to reorganize its management structures. Once your business’s reorganization occurs, the federal courts may allow you to trade your old stock for the company’s new stock. The bankruptcy court has the final decision regarding the company’s stockholders. The federal court will decide if you are insolvent or not and whether the stockholders will receive any compensation.
Eligibility for Chapter 11 Bankruptcy
You will find that most debtors prefer filing chapter 7 or 13 bankruptcy due to the risk, time, and cost that a Chapter 11 Bankruptcy petition requires. To make the right decision when it comes to Chapter 11, you will need to understand it. So the first question is whether you are eligible to file or not.
Partnerships, sole proprietors, and corporations can make their bankruptcy petition under chapter 11. You can also file for this bankruptcy as an individual when you do not wish to liquidate your assets and if your debts are too massive for a chapter 13 bankruptcy petition. That is why you will find a majority of celebrities and athletes filing for chapter 11 bankruptcy.
Chapter 11 Bankruptcy Procedure
With a chapter 11 bankruptcy petition, your business will continue its daily operations with the bankruptcy courts approving all significant decisions. The bankruptcy court may appoint a trustee who will help manage your business to prevent dishonesty and fraud from happening in your business.
A chapter 11 bankruptcy process can be either a voluntary action where you file for bankruptcy or an involuntary action where your creditors file for bankruptcy. When your creditors file for your bankruptcy, they do so to recoup their debt.
Once the bankruptcy process starts, an automatic stay comes into effect. This automatic stay stops all debt collection measures taken by the creditors while the stay is in effect.
After filing for bankruptcy, your business has up to four months to develop a re-organizational plan. If you cannot come up with an organizational strategy, your creditors can come up with one.
A reorganization plan is a contract between your business and its creditors. It outlines your obligations to the creditors and how the debt will be paid off. Even if you can develop a reorganizational plan, it is advisable to engage the services of an experienced Aliso Viejo bankruptcy attorney to negotiate your debt with your creditors. They will also develop a downsizing plan that will reduce the company’s expenses, free up some assets that may be used for repayments. The reorganizational plan may include selling some assets as well, and the proceeds go to offset the debt.
You should note that some of your creditors may refuse your re-organizational plan. If this happens, your attorney can ask the bankruptcy judge to force the creditors into accepting the re-organizational plan. The creditors can also develop their reorganizational plan for your business; consult with your bankruptcy attorney if this happens.
A reorganizational plan usually includes the following debts:
- Secured debts
- Priority debts
- Unsecured debts.
The Role of a Bankruptcy Court
You will find that when it comes to Chapter 11 bankruptcy, federal courts play a significant role. Though you will continue with day to day operations of your business, the bankruptcy court will have to approve the following:
- The real property that you would not sell ordinarily while running your business
- Expanding or shutting down some of your business operations
- Your secured financial arrangements may allow you to borrow more money
- Your lease agreements
- your Retention of professional service providers like attorneys and how the company covers its expenses.
- You are entering into new contracts, modifying contracts, and other licensing agreements.
A bankruptcy court may appoint a creditor’s committee whose sole aim is to represent unsecured creditors during a chapter 11 bankruptcy case. This creditors committee has the right to seek professional assistance like hiring attorneys at your expense.
You will find that some shareholders and creditors support or oppose your actions, which will call for bankruptcy court approval. Stockholders (equity holders) and creditors can only vote when it comes to the reorganizational plans.
When you come up with a reorganizational plan, some or all your creditors might object. You will need to come up with a disclosure statement that reveals your background information fully to your creditors. A disclosure statement allows your creditors to decide on the feasibility of your reorganizational plan. If your creditors oppose your plan and reject your disclosure statement, you will undergo several costly litigations. If the court approves your disclosure statement, it will set a date for your creditors to table their objections and vote on your reorganizational plan.
Chapter 11 Reorganization Plan
Under normal circumstances, you have the exclusive right to develop a reorganizational plan within four months after filing a bankruptcy petition. However, a bankruptcy court can extend the period up to 18 months so that you can come up with a reorganizational pan. This extended period makes chapter 11 bankruptcy very costly.
If your exclusive time expires, a creditors’ committee can come up or propose a different organization plan for your business. If your reorganizational plan doesn’t satisfy your creditors, they can make a move to have your chapter 11 bankruptcy petition dismissed and file for a chapter 7 bankruptcy petition.
Reorganization Plan Confirmation
It should be easy to come up with a plan that you and your creditors can agree on. But what happens when your creditors object to your plan? Your Aliso Viejo bankruptcy attorney may request the court to force the creditors to accept your proposal. If this happens, the court will put the following points into considerations:
- Good Faith
A court of law will seek to determine if your proposal was made in good faith without any hidden agenda that violates the law.
The court will seek to determine if your proposed plan has any likelihood of success; you will need to prove that you can meet all your financial obligations.
- Creditors Best Interest at Heart
You will need to prove to the court that you have the creditor’s best interest at heart. You can achieve this by showing the court that the creditors will receive the same amount they would have received if your company liquidated. Sometimes, you are not in a position to repay your creditors fully, and you can pay a fraction of what you owe them.
- Equitable and Fair
You must prove to the bankruptcy court that your plan is equitable and fair by:
- Showing the court that you will pay all your secured creditors over a certain period, or they will receive an equivalent sum to their collateral.
- The shareholders cannot retain some assets simply because they hold equity interest until they meet all their financial obligations to their creditors. The court can allow shareholders to maintain their interest in the company in exchange for new stock, which will be used to pay the proposal expenses. It is important to note that, once the court confirms the plan, all equity holders lose their business ownership rights.
Chapter 12 bankruptcy helps family farmers and fishers develop a restructuring plan to avoid a liquidation process.
Chapter 12 Bankruptcy Eligibility
To qualify for this bankruptcy petition, you will need to be a farmer or a fisherman who earns a regular income annually. Though steady annual income for farmers is subject to seasons, it is regarded as typical as long as it is stable to allow the farmer to contribute to a chapter 12 payment plan.
To be eligible to file for the chapter 12 petition, you can be an individual, a partnership, or even a corporation who:
- Must engage in either commercial fish farming or any other form of farming
- If you are a farmer, your total debt should not exceed $4,153,150 and $1,924,550 for a commercial fisherman
- 50% of your total debt is due to your farming operation or 80% of your debt due to commercial fishing
- More than half of your income comes from commercial fishing or farming.
Chapter 12 Bankruptcy Procedure
This bankruptcy procedure starts when you voluntarily file for relief. One of the advantages of this bankruptcy is that it allows you to continue with your farming even after filing for bankruptcy. The court will appoint a bankruptcy trustee whose primary role will be to monitor your operations, review your documents, advise the court, collect and make payment disbursement.
Chapter 12 Repayment plan
A chapter 12 bankruptcy petition allows you to propose a repayment plan to your creditors over 3-5 years. The minimum repayment plan is three years, but you can do so if you have the means to pay sooner. The court may allow you to pay your creditors in five years if you have other priority obligations like child support.
Chapter 12 Confirmation
Once you file your petition, the court sets a confirmation hearing within 45 days. During these 45 days, the bankruptcy trustee will review your documents and repayment plan and then advise the court accordingly. The judge will confirm your bankruptcy petition based on the recommendations made by the trustee.
Find A Los Angeles Bankruptcy Attorney Near Me
Deciding to file for bankruptcy is one step towards restoring your credit score, and with Los Angeles Bankruptcy Attorney, the process becomes easy. You will need an Aliso Viejo bankruptcy attorney’s help to have your debts forgiven and plan your finances. Contact our attorneys to discuss your debt and decide the type of bankruptcy to file at 424-285-5525.