Bankruptcy Law

Hello and welcome to YourBestLawyer.com. In this video, we'll offer a comprehensive overview of Chapter 11 Bankruptcy. When a legal proceeding is initiated under Chapter 11 of the United States Bankruptcy Code, it is commonly labeled as a "reorganization." While Chapter 11 cases can be filed by individuals, the most common reorganization cases are filed by corporations. An individual who has more than $2,750,000 in debt will not qualify to file Chapter 13 and may therefore file Chapter 11 instead if the individual has sufficient income or assets to fund the plan. But because filing Chapter 11 is so expensive to administer, individual Chapter 11 filings are the exception while corporate filings are the rule.

In Chapter 11, the entity facing financial challenges, known as the debtor, typically retains control and is called a "debtor-in-possession". The debtor assumes the roles and responsibilities similar to those of a Chapter 7 trustee, allowing them to continue running their business. With court approval, the debtor may also seek new financial support from lenders who specialize in debtor-in-possession financing.

In a Chapter 11 bankruptcy case, the process begins with filing a petition in the bankruptcy court where the debtor resides or conducts business. This petition can be voluntary, filed by the debtor, or involuntary, filed by qualifying creditors. The debtor must adhere to a specific format outlined in Form B 101, and additional documents, such as schedules of assets and liabilities, income and expenditures, and a financial affairs statement, are also required. Filing fees, consisting of a $1,167 case filing fee and a $571 administrative fee, are required. Failure to pay these fees may lead to case dismissal.

In a Chapter 11 case, much of the real action in the case takes place on the day of filing and the few days immediately after with the filing of "first-day motions." Because a Chapter 11 debtor is under the same statutory rule prohibiting payment of pre-petition claims as Chapter 7 and Chapter 13 debtors, they cannot pay pre-petition debts such as employee wages or pay pre-petition vendor invoices. The debtor will file several motions to allow those payments quickly because they will lose employees and vendors if they are not allowed to keep those particular creditors current. Chapter 11 debtors will file these and several similar first-day motions to continue doing business post-petition.

Different types of debtors are subject to different sets of rules in a Chapter 11. For example, small business debtors who have less than $7,500,000 in debt are governed by Subchapter V of Chapter 11 and one of the main provisions of that subchapter is that only the debtor may file a Chapter 11 Plan. Whereas corporate debtors who have more than $7,500,000 in debt have an exclusivity period of 120 days within which they can file their Chapter 11 Plan. After that period expires, a creditor or an appointed trustee can file a competing plan.

As part of the Chapter 11 process, two main debtor documents are scrutinized by creditors and the court and are crucial to the success of the case: the Disclosure Statement and the proposed Plan of Reorganization. The Disclosure Statement must include all of the financial information a creditor needs to analyze the debtor's plan of reorganization. The Plan itself lays out the debtor-in-possession's overall plan of reorganization and includes how each creditor's claim will be classified and paid. Only creditors whose rights could be impacted by this plan have the opportunity to vote on it. These creditors are considered "impaired" because the debtor is attempting to either modify the underlying contract with that creditor or attempting to pay the creditor less than the full value of the creditor's claim. The court may then confirm the plan if it secures the necessary votes and adheres to specific legal criteria.

In essence, a Chapter 11 bankruptcy provides a framework for businesses to reorganize and seek financial stability under court supervision while enjoying the benefit of the automatic stay, which prevents creditors from proceeding with collection efforts and lawsuits concerning their claims.

In individual cases, Chapter 11 shares some features with chapter 13, involving the debtor's earnings, future plan funding from earnings, and restrictions on confirming the plan over a creditor's objection without allocating disposable income for a specified period.

In summary, Chapter 11 Bankruptcy represents a highly intricate legal procedure. While we've covered the fundamentals, the following condensed version is designed to encapsulate the key elements of Chapter 11 Bankruptcy terminologies in a more concise manner.

Filing Chapter 11
The process begins with a voluntary or involuntary petition, detailing the debtor's financials. Eligibility depends on factors like past bankruptcies and credit counseling completion.

First-Day Motions
The Debtor-in Possession files several motions to seek court approval to continue paying necessary employees and vendors and to seek out or approve special financing.

Debtor in Possession
Upon filing, the debtor becomes a "debtor in possession," retaining control during reorganization. They operate the business until plan confirmation or a trustee is appointed, a rare occurrence.

Chapter 11 for Businesses
Applies to corporations, sole proprietorships, and partnerships. Corporations safeguard stockholders' personal assets, while sole proprietorships and partnerships may involve personal asset use.

Small Business Cases:
Options like "small business cases" or "subchapter V" simplify procedures for eligible businesses with specific debt criteria.

Single Asset Real Estate Debtor:
Special provisions apply to entities heavily reliant on a single property. Creditors have unique options related to the automatic stay.

U.S. Trustee/Bankruptcy Administrator:
Oversees operations, monitors reports, and conducts meetings. Imposes obligations on the debtor and may move to convert or dismiss the case for non-compliance.

Creditors' Committees:
Play a crucial role in advising and checking proper management during bankruptcy. The committee may consult with the debtor in possession on managing the business, investigate the debtor's conduct and operation of the business and also assist in formulating a plan. The creditors' committee is often in an adversarial position to the debtor-in-possession.

Appointment of Trustees/Examiners:
Rarely appointed in Chapter 11. Trustees can manage the estate, while examiners have a more limited role. These types of trustees should not be confused with the U.S. Trustee, but are instead independent trustees outside of the U.S. Trustee's office.

Automatic Stay:
Halts creditor actions, including lawsuits and collection efforts, temporarily, with some exceptions for secured creditors.

Plan Confirmation:
Debtor files a reorganization plan; creditors vote; court confirms if criteria met. Specific provisions apply to small business cases.

Disclosure Statement:
Provides crucial financial information to creditors and the court; court approval needed before plan vote.

Acceptance of Plan Reorganization:
Debtor has exclusive filing period, extensions possible. If no plan, other parties may propose. Court considers feasibility and good faith in confirmation.

Discharge in Chapter 11:
Debtor released from pre-confirmation debts; exceptions apply. For individual debtors, discharge is entered only after complying with the confirmed plan. For corporate debtors, discharge is entered upon confirmation of the plan.

Final Decree:
Confirmation can be revoked within 180 days for fraud, following notice and hearing.

LEGAL FEES:
In Chapter 11 Bankruptcy law and other civil matters, a prevailing approach involves an advanced retainer for legal fees. This retainer serves as an upfront payment from the client to the attorney or law firm, ensuring financial security and guaranteeing compensation for legal services. Typically, the retainer is deposited into a designated trust account, from which the attorney deducts fees as services are provided. The retainer is replenished as needed during the case, establishing transparency and a structured billing system that assures clients their attorney has the necessary funds. Importantly, the retainer should not be confused with a final fee; instead, it functions as a prepaid amount against which the attorney bills for ongoing services. This system not only fosters clear financial expectations but also benefits both clients and lawyers by simplifying the financial aspect of legal representation. Additionally, any court costs, such as the current $1,738.00 filing fee for a petition of a bankruptcy Chapter 11 will be deducted from the advance retainer.

Below, we detail three options based on your finances. Our first option connects you with skilled Chapter 11 attorneys with a minimum of 2 years of experience, providing affordable solutions. These professionals offer a cost-effective entry point, with rates starting at $7,500.00 to $12,500.00 for the advance retainer. Their hourly fees range from $250.00 to $315.00, ensuring quality legal support within your budget. Should you deplete the retainer, it's easily replenished.

Our second option is for when you require an elevated level of expertise, exposure, and trial proficiency. Seasoned attorneys with 6 to 10 years of Chapter 11 experience are ready to champion your cause. Rates start from $12,500.00 to $15,000.00 as an advance retainer, with hourly fees ranging between $315.00 and $500.00, granting you access to a wealth of legal knowledge and skills. You also have the unique ability to set your preferred advance retainer and hourly fee, inviting attorneys to respond with tailored offers and giving you control over your legal costs.

For those seeking unparalleled legal excellence, our top-notch attorneys step into the spotlight. With a minimum of 10 years in practice, including Board Certified Specialists in Bankruptcy law recognized by the Arizona State Bar, these legal virtuosos excel when facing complex challenges. Premium fees range from $15,000.00 to $25,000.00 as an advance retainer and hourly fees ranging from $500.00 per hour to $720.00 per hour.

Your choice of legal counsel is a significant decision, and our three distinct options ensure you find the right fit for your unique circumstances, from cost-effective solutions to top-tier representation. We're confident that you've gained valuable insights and are now poised to make the most informed decision among our stellar lawyer options. From the rising novice to the top-tier professionals, each attorney is committed to securing the best outcome while keeping personal exposure to a minimum. Best of luck and brace yourself for an exhilarating experience using our platform!

Credit for this script:
Author: Felix Martinez
Attorney that checked for correct information and to make sure there was no legal advice given: Jennifer Nichols-Moore
Other information obtained from:
https://www.justice.gov/ust
https://www.azb.uscourts.gov/
https://www.azleg.gov/viewdocument/?docName=https://www.azleg.gov/ars/33/01133.html