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Chapter 11

Rhode Island Chapter 11 Bankruptcy Attorneys

In today’s uncertain economic times, anyone can find themselves in financial difficulty. If you own a business and need some financial breathing room, a Chapter 11 bankruptcy can be a valuable legal tool to restructure your debts. Contractors, Restaurants, Real Estate companies and Manufacturers are some examples of companies who can be helped by Chapter 11.

Chapter 11 bankruptcy exists to allow businesses to reorganize their debt obligations. A Chapter 11 bankruptcy is typically used when the business wishes to restructure its debt and continue operating. In contrast, a Chapter 7 bankruptcy would usually be used if the business wished to liquidate its assets and dissolve at the conclusion of the bankruptcy.

How Chapter 11 Works

1. Filing of the Petition and Schedules. A Chapter 11 bankruptcy case is started by filing a Petition for relief with the United States Bankruptcy Court. The petition is accompanied by relevant financial information, which is provided on various forms that are sometimes called “schedules,” including:

a. schedules of assets and liabilities;
b. schedule of current income and expenditures;
c. schedule of executory (active) contracts and unexpired leases;
d. statement of financial affairs;

2. The Reorganization Plan. Under Chapter 11, the debtor typically has 120 days to submit a plan of reorganization. This deadline can also be extended for good cause. The reorganization plan generally provides for repayment of secured loans over an extended period of time or over the useful life of the collateral. Interest rates on loans may be adjusted to be within “market rate.” The plan also may call for unsecured creditors to be paid substantially less than the full amount of their claims in full satisfaction of their claims.

3. Plan Approval and Confirmation Hearing. The reorganization plan is voted on by those creditors whose claims are “impaired,” meaning that their contractual rights are modified or who will be paid less than the full value of their claim. If the plan is approved by the debtor’s impaired creditors, the bankruptcy court conducts a plan confirmation hearing. Assuming the plan is confirmed, the debtor and all of its creditors are bound by the terms of the confirmed plan going forward. The bankruptcy court’s order of confirmation also officially discharges (cancels) all of the debtor’s debts, unless the debt was specifically exempted by the court.

4. Benefits of Chapter 11 Relief. Chapter 11 bankruptcy offers many benefits to a financially strapped debtor. Two of the main ones include the automatic stay and debtor in possession status:
a. Automatic Stay. Immediately upon the filing of a Chapter 11 bankruptcy petition, the “automatic stay” comes into effect by operation of law. The automatic stay immediately stops creditors from beginning or continuing most actions against the debtor, including collection activities, foreclosures, evictions, repossessions, lawsuits, and attempts to collect on judgments, unless the creditor seeks and receives court approval to proceed. This gives the debtor breathing room to assess the situation and work to make the necessary changes to improve its financial situation.
b. Debtor In Possession. One of the greatest benefits of filing for Chapter 11 relief is that, under most circumstances, the debtor gains an additional identity called the “debtor in possession” (sometimes shortened to “DIP”). When a debtor remains as debtor in possession, the debtor continues to make business decisions and retains control over all of the business’s assets throughout the duration of the bankruptcy. As the debtor in possession, the debtor can restructure its debts using many of legal powers that a trustee would have, and has the ability to:
a. examine and object to claims against the debtor;
b. hire (with court approval) accountants, attorneys, appraisers, auctioneers, and other necessary professionals to help the debtor as needed during the bankruptcy case; and,
c. set aside (or avoid) certain transactions that happened prior to the filing of the bankruptcy case, including preferential transfers, fraudulent transfers, and executory (active) contracts and leases.

Chapter 11 offers many additional benefits to those needing to financially reorganize. However, because each business has a unique financial situation, businesses considering filing for bankruptcy in Rhode Island should contact Peter M. Iascone & Associates, Ltd.

Legal Disclaimer

Nothing contained herein should construed to constitute advice for your individual circumstances. Furthermore, this is intended as an overview of the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws. Whether or not you should file a bankruptcy will vary depending on your circumstances and should only be undertaken after careful consideration and analysis, and after consultation with a bankruptcy professional.

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