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    Chapter 11 Business Reorganization

    How Businesses Can Use The Chapter 11 Bankruptcy Process To Get Out Of Debt

    California’s Chapter 11 bankruptcy is regarded as being a rehabilitative reorganization procedure businesses use to help them with their debt. Businesses such as corporations, partnerships and sole proprietors can use this method of bankruptcy to gain control over their finances.

    Understanding Rehabilitative… When Dealing With Bankruptcy Filings

    What does “rehabilitative” mean in relation to bankruptcy filings? It’s meant to give a business owner the ability to pay certain types of debts off and have others dismissed.  Filing for Chapter 11 bankruptcy is rather complicated, and you should never try going at it alone. You need to hire an experienced bankruptcy lawyer to help you wade through the various bankruptcy laws to attain the best possible outcome when it boils down to the company’s circumstances.

    The person filing for Chapter 11 bankruptcy must bring the following information:

    • In-depth financial statements
    • Liabilities
    • Petition that lists assets

    During this rehabilitative process, filers will need to act as a trustee, called a debtor in possession and keep possession of this property ascribed to the business after a bankruptcy is finalized. There are certain cases where the bankruptcy court can appoint a trustee outside the company for various reasons like:

    • Misrepresentations of business’ financial standing
    • Fraud
    • Mismanagement

    On top of that, the court will note if a company needs to be looked at closer, assigning a trustee to take over the organization’s operations and/or borrower’s assets.  In a less invasive move, the court can assign someone – an independent examiner – who will oversee the business’ daily activities in the bankruptcy process.

    What Happens In The Chapter 11 Bankruptcy Process

    When the bankruptcy process starts, a court trustee will look at the list of liabilities and assets to find out what debts can be paid in full and what debts can be partly paid off or dismissed altogether. Paid in full debts, based on California’s bankruptcy law, usually include:

    • Child support
    • Alimony
    • Government loans
    • Fines
    • Taxes

    The trustee will balance out the liabilities and assets to develop a repayment plan that must be submitted to the court. If the court approves the plan, it will list what debts are going to be discharged and what debts are going to be honored.

    Between the times the trustee’s petition has been submitted and the court approves the Chapter 11 bankruptcy filing, creditors will need to stop all collection attempts. They can, on the other hand, dispute the debts you owe them. This can lead to new terms being worked out between you, the creditor and bankruptcy court.

    What A Chapter 11 Bankruptcy Is Designed To Do

    The structure behind a Chapter 11 bankruptcy is to ensure creditors are paid back through the sale of certain things and constant company operations. However, the successfulness of these filings is low – with just 10 percent. One reason for the low success rate is that a company that’s struggling to survive will continue to do so and go bankrupt.

    What happens is that any incentive to continue the operations drops significantly and the owner will look for other avenues to make money, leaving the trustee to handle the company. Combine this issue with the difficulty that comes with filing Chapter 11 bankruptcy, and it’s no wonder people seek out experienced bankruptcy lawyers to help them to decide if this filing method is right for them.

    If you own a company based in California that’s struggling, come talk to our attorneys at Zhou and Chini to see how we help our clients with their financial problems.