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Chapter 11 Bankruptcy Lawyers
Our Chapter 11 Virginia business bankruptcy lawyers have decades of experience in Virginia bankruptcy courts. We have assisted many businesses and individuals with reorganizing their business debt allowing the business to stay in operation throughout the bankruptcy without having the constant concern of creditors hounding their every step.
Each Chapter 11 bankruptcy lawyer on our business bankruptcy team have decades of experience helping business avoid, plan for, and successfully complete business bankruptcy proceedings. Our skilled team will:
- Review and analyze your debt and business profile, and discuss all of your options;
- Determine what chapter of bankruptcy is appropriate, if any, for the business, and in many cases, the business owner;
- Get the planning or bankruptcy process started allowing business owners to get back to business as soon as possible.
The goal of federal bankruptcy law is to provide the debtor with a fresh start. Our business bankruptcy attorneys are some of the best bankruptcy lawyers in northern Virginia, with the firm having been voted the Best Lawyers in Virginia each year, (2014 to 2020), providing bankruptcy legal advice and representation for:
- Analysis of debt, contracts, legal obligations, and whether a business bankruptcy or insolvency work-out plan is feasible;
- Pre-bankruptcy planning and settlement with creditors if feasible in an effort to avoid bankruptcy;
- Chapter 7 and Chapter 11 business bankruptcy petition and plan preparation;
- Management of Chapter 11 debtor-in-possession bankruptcy plans;
- Lift-stay litigation;
- Creditor claim objections;
- Debtor and creditor litigation;
- Preference actions;
- Fraudulent transfers;
- Equitable subordination; and
- Lender liability.
What are the Bankruptcy Options for a Business?
There are two primary types of bankruptcy for businesses in debt; Chapter 7, which is a liquidation, and Chapter 11 which is a restructuring of debt for an insolvent business. Our Loudoun county bankruptcy lawyers working out of our Leesburg, Virginia office work with our Fairfax county bankruptcy lawyers from our Vienna, Virginia office representing businesses in insolvency and debt management throughout Northern Virginia, including Arlington, Alexandria, Fauquier, Prince William, and Stafford counties. All northern Virginia business bankruptcies must be filed in the Alexandria Federal Bankruptcy Court, which is part of the Eastern District of Virginia Federal Court system, often called the EDVA Bankruptcy Court.
What is the difference between a Chapter 7 Bankruptcy and a Chapter 11 Bankruptcy?
In a Chapter 7 business bankruptcy a trustee is appointed to collect and liquidate assets then distribute the proceeds to creditors in accordance with set priorities. Unlike individual bankruptcy, business do not obtain a discharge in Chapter 7 business bankruptcies. A Chapter 11 bankruptcy is primarily a tool used by businesses and very high net worth individuals that do not qualify for either Chapter 7 or Chapter 13 bankruptcy. In a Chapter 11 business bankruptcy the debtor seeks to rehabilitate and reorganize its financial structure. The goal of business Chapter 11 is to propose a plan of reorganization that is accepted by a vote of the creditors. Chapter 13 allows a wage earner to propose a plan to pay business creditors in full or in part and provides a discharge while allowing the debtor to retain assets that might be liquidated in a Chapter 7.
Why File a Chapter 11 Bankruptcy for a Business?
A Chapter 11 bankruptcy is unique in that the debtor remains in possession of all assets and manages the ongoing business, called the Debtor-in-Possession. In other words, the debtor is the Trustee for the estate instead of having a court-appointed trustee. While this is a great advantage, it does not come without its costs. With great power, comes great responsibility. Chapter 11 debtors have the ability to object to creditors' claims, avoid liens, reject leases and contracts, often with no penalty, reinstate a breached contract, extend the time for repayment to existing creditors or even reduce the amount owed or paid to creditors, called a “cram down.” Typically there is litigation associated with most Chapter 11 cases, either with the debtor attacking the creditors claims, or the creditors objecting to the debtor’s plan of reorganization and cram down of debt.
Some Hard Facts about Chapter 11
Chapter 11 is very expensive and time consuming. There are constant administrative burdens which must be met. Reports must be filed and fees must be paid. Since Chapter 11 cases can last from several months to several years, the professional fees for attorneys, accountants, and others can add up quickly.
The Key to Chapter 11 Bankruptcy
The key to a successful Chapter 11 case is pre-bankruptcy planning with an experienced Chapter 11 bankruptcy lawyer. This is true with any chapter of the bankruptcy code, but is particularly critical in a Chapter 11. The administrative burdens, time constraints, financial pressures, and other problems are so much greater, that a failure to plan ahead, and prepare as much documentation as possible prior to filing, will usually make confirmation of a plan difficult and more expensive.
What is the Chapter 11 Bankruptcy 11 Plan?
The ultimate purpose of a Chapter 11 case is to get a Plan of Reorganization for repayment of debts confirmed by the court. This is by no means a simple task and the requirements for doing this are rather complex and will not be discussed here. The Plan is basically a contract with business creditors as to how they will be repaid, and from what source. There are many ways to formulate a Plan and the more skilled attorneys will explore all avenues to improve your business and financial position.
How does a Business File Bankruptcy?
A business bankruptcy case, like all bankruptcy cases, is commenced by the filing of a petition. You must also file a statement of your assets and liabilities and schedules listing your creditors. The petition is followed by the filing of a proposed Plan of Reorganization, detailing which creditors the business plans to pay or not pay, which contracts and leases the debtor plans to keep or reject, among other things. Once the Plan is confirmed, the business bankruptcy debtor then enters into execution of the Plan with the assistance of their business bankruptcy attorney who helps manage the payments and contractual obligations of the business debtor.
How Chapter 11 Works
As with all bankruptcy cases, a Chapter 11 case begins with the filing of a petition with the appropriate bankruptcy court, along with (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. If the debtor is a high net worth individual (or husband and wife), there are additional document filing requirements, among them, pay stubs, income statements, and a credit counseling certificate.
Upon filing a petition for relief under chapter 11, the debtor automatically assumes the role if a “debtor in possession,” which means that (unlike Chapter 7 and Chapter 13) the debtor keeps possession and control of its assets while undergoing a Chapter 11 reorganization, without the appointment of a trustee. A debtor will remain a debtor in possession until the debtor’s plan of reorganization is confirmed, the debtor’s case is dismissed or converted to chapter 7, or a chapter 11 trustee is appointed. The appointment or election of a trustee occurs only in a small number of cases. Generally, the debtor, as “debtor in possession,” operates the business and performs many of the functions that a trustee performs in cases under other chapters of the bankruptcy code.
Generally, a written disclosure statement and a plan of reorganization must eventually be filed with the court. The disclosure statement is a document that must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor’s plan of reorganization. The information required is governed by judicial discretion and the circumstances of the case. In a “small business case” (discussed below), the debtor may not need to file a separate disclosure statement if the court determines that adequate information is contained in the plan. The plan’s contents must include a classification of claims and specify how each class of claims will be treated under the plan. Creditors whose claims are “impaired,” i.e., those whose contractual rights are to be modified or who will be paid less than the full value of their claims under the plan, vote on the plan by ballot. After the disclosure statement is approved by the court and the ballots are collected and tallied, the court will conduct a confirmation hearing to determine whether to confirm the plan.
The Small Business Case and the Small Business Debtor
In a small business case, the debtor in possession must, among other things, attach the most recently prepared balance sheet, statement of operations, cash-flow statement, and most recently filed tax return to the petition or provide a statement under oath explaining the absence of such documents and must attend court and the U.S. trustee meeting through senior management personnel and counsel. The small business debtor must make ongoing filings with the court concerning its profitability and projected cash receipts and disbursements, among other things.
Because certain filing deadlines are different and extensions are more difficult to obtain, a case designated as a small business case normally proceeds more quickly than other Chapter 11 cases. For example, only the debtor may file a plan during the first 180 days of a small business case. This “exclusivity period” may be extended by the court, but only to 300 days only if the debtor demonstrates by a preponderance of the evidence that the court will confirm a plan within a reasonable period of time. However, when the case is not a small business case, the court may extend the exclusivity period “for cause” up to 18 months.
The Automatic Stay
The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before filing the bankruptcy petition. As with cases under other chapters of the Bankruptcy Code, a stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor’s financial situation.
Generally, any creditor whose claim is not scheduled (i.e., listed by the debtor on the debtor’s schedules) or is scheduled as disputed, contingent, or unliquidated must file a proof of claim (and attach evidence documenting the claim) to be treated as a creditor for purposes of voting on the plan and distribution under it. But filing a proof of claim is unnecessary if the creditor’s claim is scheduled (but is not listed as disputed, contingent, or unliquidated by the debtor) because the debtor’s schedules are deemed to constitute evidence of the validity and amount of those claims. It is the responsibility of the creditor to determine whether the claim is accurately listed on the debtor’s schedules.
Confirmation of a plan generally discharges a debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor must make plan payments and is bound by the provisions of the plan of reorganization. The confirmed plan creates new contractual rights, replacing or superseding pre-bankruptcy contracts.
Of course, there are exceptions to the general rule that an order confirming a plan operates as a discharge. Confirmation of a plan of reorganization discharges any debtor – corporation, partnership, or individual – from most types of prepetition debts. However, it does not discharge an individual debtor from any debt made nondischargeable by section 523 of the Bankruptcy Code. Moreover, except in limited circumstances, a discharge is not available to an individual debtor unless and until all payments have been made under the plan. Confirmation does not discharge the debtor if the plan is a liquidation plan instead of reorganization unless the debtor is an individual.
For companies that are struggling, it is important to understand that early planning is the best medicine. Our attorneys take a flexible approach to a reorganization, simultaneously seeking solutions outside of the bankruptcy system while also planning a bankruptcy strategy. But the most successful reorganizations are usually those that have had strategies planned well in advance of an actual default. If your business is struggling, please contact our attorneys for a consultation to discuss your business’s reorganization options.
Areas We Serve
The Loudoun County, Virginia (from our Leesburg office), Fairfax County, Virginia (from our Tyson’s corner office), and Richmond, Virginia (from our West End of Richmond office) locations of our bankruptcy law firm practice serve businesses and individuals in Chapter 7 and Chapter 11 bankruptcies in Alexandria, Arlington, Ashburn, Fairfax, Falls Church, Fauquier, Herndon, Loudoun, Manassas, McLean, Prince William, Reston, Tyson’s Corner, Vienna, Warrenton.
Call today to get started and get back to business.