How A Bankruptcy Reorganization Attorney In Boston Can Help You
In general terms, a Chapter 11 reorganization allows a business debtor to restructure its debt through a Chapter 11 plan of reorganization served on all creditors and approved by the United States Bankruptcy Court.
A Chapter 11 case begins with the filing of a Petition with the United States Bankruptcy Court.
Generally, a written disclosure statement and a plan of reorganization must be filed with the Bankruptcy Court within several months after that. 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 Chapter 11 plan of reorganization. The information required is governed by judicial discretion and the circumstances of the case.
The contents of the reorganization plan must include a classification of claims and must 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 Chapter 11 plan of reorganization, 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 or not to confirm the Chapter 11 plan of bankruptcy reorganization.
Bankruptcy Reorganization Attorney Boston: The Automatic Stay
Once a Petition in bankruptcy is filed, a stay is imposed automatically (the “Automatic Stay”) by operation of federal law staying all actions by creditors, with limited exceptions, from commencing or continuing any and all actions to collect a debt against the debtor or any property of the debtor. Under the United States Bankruptcy Code, property of the Chapter 11 debtor is given an expansive meaning to include any and all property, either real or personal wherever located including legal and beneficial interest.
The Automatic Stay provides a period of time in which all lawsuits, 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 the filing of the bankruptcy Petition.
Bankruptcy Reorganization Attorney Boston: The Chapter 11 “Debtor in Possession”
Chapter 11 is typically used to reorganize a business, which may be a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the shareholders. The chapter 11 bankruptcy case of a corporation does not put the personal assets of the shareholders at risk other than the value of their investment in the company’s stock. A sole proprietorship (owner as debtor), on the other hand, does not have an identity separate and distinct from its owner(s). Accordingly, a bankruptcy case involving a sole proprietorship includes both the business and personal assets of the owners-debtors. Like a corporation, a partnership exists separate and apart from its partners. In a partnership bankruptcy case (partnership as debtor), however, the partners’ personal assets may, in some cases, be used to pay creditors in the bankruptcy case or the partners, themselves, may be forced to file for bankruptcy protection.
The Bankruptcy Code places the debtor in possession in charge of its assets and financial affairs (no Trustee) but in the position as a fiduciary with respect to its creditors. As a debtor in possession, a Chapter 11 business debtor has all the rights and powers of a Chapter 11 trustee.
Bankruptcy Reorganization Attorney Boston: The Single Asset Real Estate Debtor
Single asset real estate debtors are subject to special provisions of the Bankruptcy Code. The term “single asset real estate” is defined as “a single property or project, other than residential real property with fewer than four residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental.”. The Bankruptcy Code provides circumstances under which creditors of a single asset real estate debtor may obtain relief from the automatic stay which are not available to creditors in ordinary bankruptcy cases. On request of a creditor with a claim secured by the single asset real estate and after notice and a hearing, the court will grant relief from the automatic stay to the creditor unless the debtor files a feasible Chapter 11 plan of bankruptcy reorganization or begins making interest payments to the creditor within 90 days from the date of the filing of the case, or within 30 days of the court’s determination that the case is a single asset real estate case. The interest payments must be equal to the non-default contract interest rate on the value of the creditor’s interest in the real estate.
Addressable Issues Regarding Bankruptcy Reorganization in Boston:
Cash Collateral, Adequate Protection, and Operating Capital
Although the preparation, confirmation, and implementation of a plan of reorganization is at the heart of a Chapter 11 case, other issues may arise that must be addressed by the debtor in possession. The debtor in possession may use, sell, or lease property of the estate in the ordinary course of its business, without prior approval, unless the Bankruptcy Court orders otherwise. If the intended sale or use is outside the ordinary course of its business, the debtor must obtain permission from the Bankruptcy Court.
A debtor in possession may not use “cash collateral” without the consent of the secured creditor or authorization by the court, which must first examine whether the interest of the secured creditor is adequately protected. The Bankruptcy Code defines “cash collateral” as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, whenever acquired, in which the estate and an entity other than the estate have an interest. It includes the proceeds, products, offspring, rents, or profits of property and the fees, charges, accounts or payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties subject to a creditor’s security interest.
When “cash collateral” is used (spent), the secured creditors are entitled to receive additional protection under the Bankruptcy Code. The Chapter 11 debtor in possession must file a motion requesting an order from the court authorizing the use of the cash collateral.
Bankruptcy Reorganization Motions
Before confirmation of a plan, several activities may take place in a Chapter 11 case. Continued operation of the Chapter 11 debtor’s business may lead to the filing of a number of contested motions. The most common are those seeking relief from the automatic stay, the use of cash collateral, or to obtain credit. There may also be litigation over executory (i.e., unfulfilled) contracts and unexpired leases and the assumption or rejection of those executory contracts and unexpired leases by the Chapter 11 debtor in possession. Delays in formulating, filing, and obtaining confirmation of a plan of reorganization often prompt creditors to file motions for relief from stay, to convert the case to chapter 7, or to dismiss the case altogether.
The Bankruptcy Reorganization Disclosure Statement
Generally, the Chapter 11 debtor (or any plan proponent) must file and get court approval of a written disclosure statement before there can be a vote on the plan of bankruptcy reorganization. The disclosure statement must provide “adequate information” concerning the affairs of the debtor to enable the holder of a claim or interest to make an informed judgment about the plan. After the Chapter 11 disclosure statement is filed, the court must hold a hearing to determine whether the disclosure statement should be approved. Acceptance or rejection of a plan usually cannot be solicited until the Bankruptcy Court has first approved the written disclosure statement.
Upon approval of a Chapter 11 disclosure statement, the plan proponent must mail the following to the U.S. trustee and all creditors and equity security holders: (1) the plan; (2) the disclosure statement; and (3) notice of the time within which acceptances and rejections of the plan may be filed. In addition, the debtor must mail to the creditors and equity security holders entitled to vote on the plan or plans: (1) notice of the time fixed for filing objections; (2) notice of the date and time for the hearing on confirmation of the plan; and (3) a Ballot for accepting or rejecting the plan of reorganization.
Acceptance of the Plan of Reorganization
As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the Chapter 11 bankruptcy Petition is filed. In addition, the debtor has 180 days after the Petition date to obtain acceptances of its plan. The court may extend (up to 20 months) or reduce this acceptance exclusive period for cause.
In a chapter 11 case, a liquidating plan is permissible. Such a plan often allows the debtor in possession to liquidate the business under more economically advantageous circumstances than a chapter 7 liquidation. It also permits the creditors to take a more active role in fashioning the liquidation of the assets and the distribution of the proceeds than in a chapter 7 case.
Generally, a plan of reorganization will classify claim holders as secured creditors, unsecured creditors entitled to priority, general unsecured creditors, and equity security holders.
Under the Bankruptcy Code, an entire class of claims is deemed to accept a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class.
Any party in interest may file an objection to confirmation of a plan of reorganization. The Bankruptcy Code requires the court, after notice, to hold a hearing on confirmation of a plan. If no objection to confirmation has been timely filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to law. Before confirmation of a Chapter 11 plan of reorganization can be granted, the Bankruptcy Court must be satisfied that there has been compliance with all the other requirements of confirmation set forth in section 1129 of the Bankruptcy Code, even in the absence of any objections. In order to confirm the plan, the court must find, among other things, that: (1) the plan is feasible; (2) it is proposed in good faith; and (3) the plan and the proponent of the plan are in compliance with the Bankruptcy Code. In order to satisfy the feasibility requirement, the court must find that confirmation of the plan is not likely to be followed by liquidation (unless the plan is a liquidating plan) or the need for further financial reorganization.
The Bankruptcy Reorganization Discharge
The Bankruptcy Code generally provides that confirmation of a plan discharges a business debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor is required to make plan payments and is bound by the provisions of the Chapter 11 plan of reorganization. The confirmed plan of reorganization creates new contractual rights, replacing or superseding pre-bankruptcy contracts.
THE NEW SUB CHAPTER V BANKRUPTCY REORGANIZATION CASES
The United States Congress recently enacted The Small Business Reorganization Act of 2019 and in doing so created a new bankruptcy framework for small business debtors to reorganize under the new Subchapter V of Chapter 11. The following is a general overview of the new law.
- Who Can Be a Small Business Debtor?
To qualify as a small business debtor, the debtor must be a person or entity engaged in commercial or business activity with aggregate secured and unsecured debts of $2,725,625. The only excluded activity for the small business debtor is operating “single asset real estate” which is a debtor who derives substantially all of its gross income from the operation of a single real property.
The Sub Chapter V Trustee
The court will appoint a trustee, but his or her powers are more like a Chapter 12 trustee (for family farmer bankruptcies) or a Chapter 13 trustee (for wage earner bankruptcies) than a traditional Chapter 7 or 11 trustee. The Subchapter V trustee does not take possession of a debtor’s assets and lacks the ability to administer or sell those assets. The trustee is more like an advisor — facilitating the formation of a consensual reorganization plan, appearing at hearings, and ensuring that the debtor makes timely payments under the plan of reorganization.
Administration of the Sub Chapter V Case
The Sub Chapter V case is designed to move very quickly as opposed to a regular Chapter 11 case. The Court will hold a status conference within 60 days from the filing of the Petition. At least 14 days before that conference, the business debtor must report in writing on the efforts made, and to be made, to get a consensual plan of reorganization. The business debtor must file its plan of reorganization within 90 days from the filing. Unlike regular Chapter 11 reorganization cases where after the expiration of an “exclusivity period”, any creditor can file a plan of reorganization, in a Sub Chapter V case, only the debtor may file a plan.
A Subchapter V business debtor does not have to file a disclosure statement. However, the plan of reorganization must include a brief history of the business operations, a liquidation analysis, and projections demonstrating the ability of the debtor to make the proposed plan payments.
In a regular Chapter 11 reorganization, creditors vote on a plan. But in Subchapter V reorganization, a business debtor can confirm a plan even without acceptance by creditors. To do so, the plan must not discriminate unfairly and must be fair and equitable as to all creditors. The so-called “Best Interest Test” still applies meaning that creditors must still receive as much under the plan as they would if the debtor were liquidated in Chapter 7. Subchapter V also includes an option for the debtor to contribute all “projected disposable income” to making plan payments for three to five years – much like a Chapter 13 plan. Projected disposable income is everything after expenses to maintain and support the debtor (or a dependent) and expenditures necessary for business operations.
To confirm the reorganization plan, the court must find that the business debtor will be able to make all payments under the plan or there is a reasonable likelihood that the debtor will be able to make all payments under the plan and the plan of reorganization contains appropriate remedies to safeguard the creditors in the event of nonpayment.
With a consensual plan of reorganization, the business debtor will receive a discharge at confirmation. However, without a consensual plan, the business debtor will receive a discharge if he completes all plan payments.
Riley & Dever | The Boston Bankruptcy Reorganization Attorney You Deserve
Riley & Dever is a full service law firm that provides quality and personalized legal services to individuals, families, and businesses. Most of the lawyers at Riley & Dever earned their law degrees at Suffolk University Law School, one of the best law schools in Boston, Massachusetts. Our lawyers focus their practice in general and commercial litigation, estate planning, business transactions, corporate law, family law, and bankruptcy cases.
The law firm of Riley & Dever was initially founded and located in the heart of downtown Boston. As of today, our offices are found in Lynnfield, Massachusetts where we continue to serve the interests of our clients.
Get to Know the Bankruptcy Reorganization Attorneys of Riley & Dever
The Massachusetts bankruptcy attorneys at Riley & Dever include a former Chairman of the Massachusetts Alcoholic Beverages Control Commission, a former Massachusetts Assistant Attorney General – Chief of the Criminal Bureau, and other attorneys formerly associated with Boston’s most recognized law firms.
How Can the Bankruptcy Reorganization Attorneys of Riley & Dever Help You?
Riley & Dever’s bankruptcy lawyers are currently representing small businesses and consumers in bankruptcy cases. With our extensive years of experience, you can be sure that we have cultivated a vast knowledge of bankruptcy laws and are fully updated with any bankruptcy code revisions.
Riley & Dever’s bankruptcy lawyers offer free initial consultations. We will listen to your story and assess what type of bankruptcy you need to file. Our lawyers can help you with your tax problems, mortgage foreclosures, medical billings, actions involving credit card debt collection, and other legal matters. If you are filing for Chapter 11 bankruptcy, our lawyers can help you reorganize your corporate affairs to ensure that you remain in business.
Get Your Attorney at the Riley & Dever Law Offices to Help with Your Bankruptcy Reorganization in Boston
If you are planning to file for bankruptcy, you may want to consider getting help from a Massachusetts bankruptcy attorney at Riley & Dever. Our highly qualified MA bankruptcy lawyers have been representing individuals and businesses in their bankruptcy cases. We take pride in our ability to provide personalized and professional services to serve your best interests. Contact us to if you’re in need of a bankruptcy reorganization attorney in Boston.