Chapter eleven can be utilized to safeguard sole proprietorships, partnerships, and corporations. When a business operates as a corporation, only business debts are restructured. When businesses are operated as partnerships or sole proprietorships, business debts are restructured, but business and personal assets can be used to settle outstanding debts.
When courts order the liquidation of personal assets, the filing of a business bankruptcy can force sole proprietors and business partners to declare personal bankruptcy. Therefore, the proprietors of these types of business entities should seek legal advice to determine if chapter eleven is the best option for resolving their debt issues.
Creditors may file chapter eleven petitions against debtors with a substantial amount of outstanding debt. When creditors file for bankruptcy, it is known as 'involuntary bankruptcy.' Creditors use this tactic to force debtors into bankruptcy in an effort to collect debts prior to the debtors filing bankruptcy voluntarily.
Chapter eleven is administered by the United States Department of Justice. Petitioners must adhere to the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) guidelines. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) to reduce the number of bankruptcy petitions filed by debtors engaging in frivolous spending rather than filing bankruptcy to discharge debts.
The BAPCPA mandates that all debtors engage in credit counseling. Debtors must attend classes provided by agencies approved by the U.S. Trustee. After completion, debtors present the judge with a certificate of credit counseling. For bankruptcy approval, debtors must fulfill this requirement.
Debtors are required to establish a payment plan under chapter eleven. Debtors attend a 341 creditor meeting shortly after filing bankruptcy petitions to discuss payment options with creditors. A creditor committee must approve the proposal and submit it to the presiding judge.
Debtors must disclose all business assets and, if applicable, their personal assets. Creditor committees utilize disclosure statements to determine if debtors qualify for chapter eleven protection and the amount of debts to be repaid. The Trustee is responsible for distributing bankruptcy payments to creditors until restitution is complete.
The courts appoint a debtor-in-possession to serve as trustee. This individual is responsible for submitting financial reports, filing tax returns, securing personal property and business assets, hiring accountants, attorneys, or consultants to assist with the bankruptcy process, and performing other responsibilities enumerated in Section 1107 of the United States Bankruptcy Code.
Chapter 11 debtors are required to adhere to rigorous guidelines and payment plans. If not, the company will exit bankruptcy and lose court protection. It is estimated that less than 20% of debtors successfully restructure their debts under Chapter 11.""
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