In this article...
In this article, we discuss the pros and cons of Chapter 11 bankruptcy in Indiana and answer the following questions: What Is Chapter 11 Bankruptcy?, How Is Chapter 11 Bankruptcy Different From Chapter 7 Or Chapter 13?, Is Chapter 11 Bankruptcy A Good Option For Businesses In Indiana?, and How Can I Get The Most Out Of Chapter 11 Bankruptcy?
- What Is Chapter 11 Bankruptcy?
- How Is Chapter 11 Bankruptcy Different From Chapter 7 Or Chapter 13?
- Is Chapter 11 Bankruptcy A Good Option For Businesses In Indiana?
- How Can I Get The Most Out Of Chapter 11 Bankruptcy?
Individuals with debt exceeding the limit for Chapter 13, high income earners who want more flexibility in their debt reorganization process, or businesses facing significant debt problems should strongly consider Chapter 11 bankruptcy for their debt reorganization or liquidation needs.
What Is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is most often utilized by small to large businesses because it allows for a greater degree of flexibility and control in the bankruptcy process. The individual or business filing Chapter 11 retains all of its assets, but must come up with a debt reorganization plan within 4 to 18 months. It is common amongst businesses, because it allows the business to continue operating without losing significant amounts of equipment or personnel. Any business filing for Chapter 11 bankruptcy cannot have debt in excess of $2,566,000. Once Chapter 11 bankruptcy is filed the individual or business named in the petition becomes the Debtor-In-Possesion and new bank accounts are opened specifically for the bankruptcy process.
How Is Chapter 11 Different From Chapter 7 Or Chapter 13?
Each type of bankruptcy has its’ pros and cons. But most individuals and businesses won’t be able to pick and choose whatever bankruptcy they want. Instead, their income, level of debt, and the number of assets will make them eligible for one type of bankruptcy and not for the others. Below is a summary of what criteria are likely to fall under each bankruptcy chapter:
Chapter 7: Low income individual, passes the Means Test, sole proprietorship business
Chapter 11: Small to large business with a lot of debt, high income individual, multiple assets
Chapter 13: High income individual, fails the Means Test, multiple assets, not a business
Chapter 7 bankruptcy in Indiana, often referred to as liquidation bankruptcy, is used by those not concerned with retaining their assets, whose income is below the median in the area (Means Test), and want to have a clean start with no repayment plan.
Chapter 11 bankruptcy is used mostly by businesses and corporations that have a lot of debt, but also a lot of assets and money to spend on restructuring, and want to retain their assets, while having flexibility and control over the bankruptcy process.
Chapter 13 bankruptcy in Indiana is used by individuals who don’t qualify for Chapter 7 because their income is too high, they want to retain certain assets, and they can afford the debt repayment plan.
Is Chapter 11 Bankruptcy A Good Option For Businesses In Indiana?
Chapter 11 bankruptcy is a great option for businesses for the following reasons:
- Chapter 11 bankruptcy triggers the automatic stay, blocking creditors from continuing their debt collection efforts;
- Under Chapter 11 bankruptcy the petitioner becomes the Debtor-In-Possession and has all the powers of a trustee, allowing him to object to creditor claims, sell unnecessary property, avoid liens, and reject contracts;
- Certain secured debts can be “crammed down” to their actual market value;
- The option to pay tax debt and unsecured debt over a longer period of time than other bankruptcy options;
- The business can continue to operate in much the same way as pre-bankruptcy, but with oversight.
However, there are some disadvantages to Chapter 11 bankruptcy In Indiana:
- Chapter 11 is a more complex, lengthy, and expensive option than other types of bankruptcy;
- The court may place severe restrictions on certain employees compensation in Chapter 11 bankruptcy;
- Often, the court will require approval for certain business decisions during the repayment period.
- The repayment plan is not guaranteed, and what you thought would work going into the Chapter 11 process might look very different by the end.
How Can I Get The Most Out Of Chapter 11 Bankruptcy?
Get a good accountant if you don’t already have one, and reach out to discuss your bankruptcy options with an experienced bankruptcy attorney. The complexity of Chapter 11 bankruptcy makes it nigh impossible to handle on your own. If possible, complete all pertinent appraisals before filing, and make sure you have the right schedules and documents on hand. Below is a list of some of the documents you will need during the Chapter 11 bankruptcy process:
- A schedule of all liabilities (debts);
- A schedule of all the individual’s or company’s assets;
- A balance sheet that will be used by the trustee;
- A document listing all the causes of action for the debtor;
- An up to date cash flow statement;
- The company’s most recent federal income tax return;
- A statement of financial affairs;
- A schedule of executory contracts and leases
If you have completed your due diligence before filing for Chapter 11 bankruptcy, you should have a decent idea of what the road to get out of debt and back to profitability will look like before the process officially begins. The judge handling the case will see this and the likelihood of your Chapter 11 being successful will increase.