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Chapter 11 Bankruptcy

Chapter 11 Bankruptcy
Bankruptcy protection allows certain individuals and businesses to repay their debts by either selling their assets or restructuring the company. Bankruptcy proceedings have flourished as the failing economy and lackluster job performance force applicants to seek relief under federal bankruptcy law. Over 1.3 million Americans filed for bankruptcy in 2009. Most were “consumer” cases, marking a 91% increase in chapter 11 filings that year. California still leads the nation in the total number of bankruptcies filed. Chapter 11petitions have also continued to increase despite the national drop in bankruptcy cases filed last year.

Chapter 11 is derived from title 11 of the United States Code (the “Bankruptcy Code”). Chapter 11 protection is used primarily by commercial enterprises that want to keep the business running while they repay creditors through a court-approved plan. Chapter 11 allows businesses to remain in operation while they restructure the organization and use the resulting profits to pay back creditors. Under an approved reorganization plan, businesses can reduce their debts by repaying a portion of their obligations and discharging others. Chapter 11 is unique in that it allows the debtor to be the trustee of the estate (also referred to as the “debtor in possession”) and to keep possession of the company’s assets while the case is in court.

Depending on the needs of the business, Chapter 11 offers debtors various protections, including but not limited to, the following:

• Maintenance of an intact business
• Opportunity to rescale operations
• Power to object to creditors’ claims
• Extended deadline to repay creditors
• Greater flexibility than other chapters
• Recovery of assets and return to profitability
• Discretion to terminate onerous contracts and leases
• Time to sell real estate with equity and handle delinquent taxes
Chapter 11 gives businesses a chance to restructure their finances so they can continue to run. This keeps people employed and produces a profit for stockholders while ensuring that creditors get paid. The rationale behind this protection is that a functioning business is more valuable than one whose assets are sold. Companies under Chapter 11 protection get a financial “reprieve” to reduce debts, extend the repayment deadline, or lower operating costs, until they can “return” to a more viable state. While the case is in court, the debtor remains in possession of the estate and keeps control of the assets while the court approves a reorganization plan. Chapter 11 allows the “debtor in possession” to keep the business going while acting as trustee of the estate.

Under Section 1107 of the Bankruptcy Code, the debtor assumes the same fiduciary duties as a Chapter 11 trustee. These duties include providing an accounting of property and filing monthly operating reports as required by the bankruptcy court. Under this section, trustees have the power to discharge a portion of their obligations and object to creditors’ claims. They also have the discretion to employ attorneys, accountants, and other professionals to assist the debtor in bankruptcy proceedings. Chapter 11 debtors generally enjoy more freedom as they undergo a period of consolidation before emerging with a reduced debt load and a reorganized business.
If you are a business owner seeking bankruptcy protection, the experienced California Chapter 11 bankruptcy attorneys at the Law Offices of Salar Atrizadeh can help. Our skilled attorneys and highly trained staff are dedicated to providing the highest quality legal representation to individuals and businesses throughout California. We have successfully handled all types of bankruptcy cases, helping clients get back on their feet. Regardless of the extent of your personal or business liability, we can help you restructure your finances and get a fresh start.

For a confidential consultation, call us at (310) 694-3034 or contact us online.