When a business is overwhelmed by debt, filing for Chapter 11 bankruptcy can empower that entity to reorganize itself in order to become more efficient and profitable. Once a business has filed for Chapter 11 bankruptcy, it will typically:
- Have 4 months to develop a reorganization plan for itself
- Be able to get up to 18 months to develop a reorganization plan if the court agrees that an extension of this exclusivity period is warranted (however, this period can also be cut short by the courts, depending on the specifics of a case.)
- Have to submit the reorganization plans to the court for approval by both the court and the business’ creditors.
How Chapter 11 Reorganization Plans Work
While the specific nature of a reorganization plan for a business going through bankruptcy will vary from case to case, these plans generally work by:
- Restructuring a business to streamline its operations – This can involve the liquidation of some of a business’ assets; it may also include closing some of a corporation’s stores/offices, laying off a portion of the employees and possibly focusing the business’ operations on one or two areas (while ceasing to conduct others).
- Setting up a formal plan that details how and when creditors will be repaid – These plans typically specify how much each creditor will be paid monthly (or quarterly) and, consequently, how long it will take to pay off the outstanding debt. This aspect of reorganization plans may also outline the business’ future sources of income in order to validate that a business will be able to make the payments according to the proposed plan.
There may be other factors or elements of reorganization plans, depending on the nature and goals of the business, as well as the types and amounts of outstanding debt.
Confirmation of Chapter 11 Reorganization Plans
Once a business has developed a comprehensive reorganization plan, this plan is submitted to the court for official confirmation. In assessing the proposed plan, the court will generally evaluate whether:
- The reorganization plan is possible – First and foremost, the court has to ensure that the proposed reorganization plan can actually be executed by a business and that the plan does not violate any bankruptcy laws (or propose illegal remedies).If the court determines that it is not feasible, it can reject the plan, and creditors may try to force the bankruptcy case to be converted into a Chapter 7 case (which would generally result in dissolution of the business and the liquidation of all corporate assets).
- The reorganization plan is “in the best interest of creditors” – Under this consideration, courts have to ensure that creditors will (at least) be repaid as much under the proposed reorganization plan as they would if the case were a Chapter 7 bankruptcy.
- The reorganization plan is “fair and equitable” – When this evaluation standard comes into play (which may only occur if creditors do not approve reorganization plans), the court will take a closer look at whether creditors are being repaid at least the amount that is equivalent to the collateral given for a loan. Additionally, this standard requires that business owners do not try to keep any assets until the creditors have been paid in full.
The Experienced Denver Bankruptcy Lawyer at Lindquist-Kleissler & Company, LLC
When businesses are distressed by significant debt and are facing serious financial crisis, Denver Bankruptcy Lawyer Arthur Lindquist-Kleissler is ready to:
- Help them evaluate their debt relief options
- Help them develop effective Chapter 11 reorganization plans that can help resolve their financial issues (when appropriate).
Since 1979, Mr. Lindquist-Kleissler and the other legal professionals at Lindquist-Kleissler & Company, LLC have been providing small businesses and large corporations alike with the highest quality of legal services when it comes to debt relief and bankruptcy (including civil litigation matters associated with bankruptcy). Regardless of the complexity of a corporate bankruptcy case, Mr. Lindquist-Kleissler can always be trusted to guide his clients through bankruptcy and help them achieve the best possible outcomes to their cases.
Let’s Discuss Debt Relief Options for Your Business
To learn more about corporate debt relief options and how business bankruptcy could help your distressed enterprise, set up a free 30-minute consult by calling (303) 691-9774 or by emailing our firm using the form on this page. You will pay nothing up front to obtain trusted, professional advice regarding your case and your options.
From our office in Denver, Arthur Lindquist-Kleissler represents clients throughout the Great Denver Metropolitan area and Colorado, including (but not limited to) Aurora and Arapahoe County.