Frequently Asked Questions
- What is Chapter 11?
- What is Chapter 7?
- Who controls the business in a Chapter 11?
- What is the purpose of Chapter 11?
- What should be considered in determining whether Chapter 11 is the best alternative?
- If there is a lien against the accounts receivable of the business, is Chapter 11 still possible?
- What should be considered in choosing a bankruptcy lawyer?
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United States Bankruptcy Court for
the District of South Carolina |
1. What is Chapter 11?
Chapter 11 is the type of bankruptcy which enables a business to continue in operation in order to restructure its obligations and repay them in a different way through a confirmed plan of reorganization.
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2. What is Chapter 7?
Chapter 7 is the type of bankruptcy which results in termination of a business. A trustee is appointed to take control of the business assets and liquidate them to distribute to the creditors in the order of their priority.
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3. Who controls the business in a Chapter 11?
In most cases, the business continues to be operated by the same parties who operated the business prior to filing Chapter 11. Unless there has been fraud or substantial mismanagement, no trustee or other controlling party is appointed. The business continues during Chapter 11 as it operated prior to the Chapter 11 except that it operates as a Debtor in Possession.
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4. What is the purpose of Chapter 11?
Although there are many varied benefits to Chapter 11, the primary benefit it provides is time. For a struggling business, Chapter 11 provides a breathing space in which the company has time to step back and evaluate its ongoing operations and make changes necessary to improve profitability. It uses this time to determine how to repay its creditors in a restructured way and provide for such payment in a plan of reorganization.
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5. What should be considered in determining whether Chapter 11 is the best alternative?
Filing any type of bankruptcy can be a difficult decision, involving numerous complex financial issues. Chapter 11 can be a very useful tool if used properly and in many cases can result in the continuing operation of a successful business which might otherwise be forced to terminate.
In order to make a decision about this filing, extensive discussion with an expert in this field is necessary. Any discussion will require thorough financial analysis in order to explore all the available alternatives and choose the best one for your business. In many cases, such an analysis may reveal that there are other better alternatives to Chapter 11. However, if Chapter 11 is the right solution it can provide substantial benefit and tools which are unavailable anywhere else.
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6. If there is a lien against the accounts receivable of the business, is Chapter 11 still possible?
Yes, most businesses have liens against their accounts. In Chapter 11, the Court considers allowing use of the accounts receivable in spite of the liens or approves post petition financing based on the accounts receivable generated after the Chapter 11 filing.
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7. What should be considered in choosing a bankruptcy lawyer?
Because bankruptcy is a very specialized area of the law, it is essential that a qualified attorney be chosen to handle a Chapter 11. Some very qualified bankruptcy attorneys do not provide representation in Chapter 11s because they specialize in representing consumers in smaller bankruptcies, rather than businesses. In choosing a bankruptcy attorney, it is critical to determine that they have substantial experience in the field of Chapter 11 bankruptcy and that they have been recognized as an expert in that field.
Bankruptcy is such a narrow field that attorneys are allowed to become certified specialists. Barbara Barton has been certified by the SC Supreme Court as a specialist in the field of bankruptcy since 1993. She has also been certified as a specialist in business bankruptcy law by the American Bankruptcy Institute since 1996. She is a fellow of the American College of Bankruptcy.
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