Chapter 11 Bankruptcy Lawyers - Nick Davis Law

Chapter 11 can discharge or restructure personal guarantees, but it depends on how they are handled in the reorganization plan. Our team can help protect your personal liability.

Yes, Chapter 11 can stop foreclosure and give your business time to reorganize its debts, including mortgage obligations.

A business can operate under Chapter 11 as long as it meets court obligations and is moving forward with its reorganization plan. The process can take months or years, depending on the complexity.

Small business owners can benefit from Chapter 11 by restructuring debt while keeping their business operational, especially under Subchapter V, which simplifies the process.

Chapter 11 can provide temporary relief from environmental liability claims, as these types of lawsuits are typically paused during the bankruptcy process due to the automatic stay. However, unlike most unsecured debts, environmental liabilities may not be fully dischargeable in bankruptcy, especially if there is ongoing damage or government fines involved. The court will assess whether a reorganization plan adequately addresses these claims. In some cases, the business may be required to set aside funds or continue cleanup efforts as part of the reorganization process.

In Chapter 11, you have the power to either assume or reject certain vendor contracts and supply agreements. If a contract is critical to your operations, you can assume it and continue working with that vendor, often renegotiating more favorable terms as part of your reorganization plan. Conversely, if a contract is no longer beneficial or is too costly, you can reject it, potentially freeing your business from burdensome obligations. However, rejecting contracts could lead to legal claims from the vendor, which need to be managed carefully within the bankruptcy process. It’s essential to work closely with an attorney to evaluate which contracts should be retained or discarded.

Yes, Chapter 11 can be an effective tool for selling parts of your business while keeping the remainder operational. Through a process called a Section 363 sale, businesses in Chapter 11 can sell assets, such as divisions or properties, with court approval. This can provide the liquidity needed to pay off creditors and keep the core business afloat. The sale is usually free of any liens or claims, making the assets more attractive to potential buyers. A well-planned 363 sale can help struggling businesses trim unprofitable parts and focus on what works, while still operating under the protection of Chapter 11.

In Chapter 11, you have the power to either assume or reject certain vendor contracts and supply agreements. If a contract is critical to your operations, you can assume it and continue working with that vendor, often renegotiating more favorable terms as part of your reorganization plan. Conversely, if a contract is no longer beneficial or is too costly, you can reject it, potentially freeing your business from burdensome obligations. However, rejecting contracts could lead to legal claims from the vendor, which need to be managed carefully within the bankruptcy process. It’s essential to work closely with an attorney to evaluate which contracts should be retained or discarded.

The U.S. Trustee acts as an overseer in Chapter 11 cases to ensure compliance with bankruptcy laws. They review your reorganization plan, monitor your business’s financial progress, and may raise objections if they believe your plan isn’t feasible or equitable for creditors. They’ll also ensure you’re meeting reporting requirements, such as filing monthly operating reports, and that you’re paying all required fees. The U.S. Trustee’s goal is to make sure the bankruptcy process is transparent and that the interests of creditors and other stakeholders are properly represented.

Yes, you can raise new capital or obtain financing while in Chapter 11, but any such actions must be approved by the court. This type of financing is known as debtor-in-possession (DIP) financing, and it allows your business to continue operating while undergoing reorganization. DIP financing is often essential for businesses that need an immediate cash infusion to cover operating expenses, pay employees, or purchase inventory. Lenders offering DIP financing typically receive priority repayment status, meaning they’re paid back before other creditors, which makes this type of loan more attractive to potential financiers.

If your creditors reject your proposed reorganization plan, you still have options. You can attempt to negotiate with the creditors to modify the plan to better meet their concerns, or you can pursue a cramdown process. In a cramdown, the court approves your plan over the objections of certain creditors as long as the plan is considered fair and equitable under bankruptcy law. The court typically looks at whether the plan offers a reasonable repayment structure and ensures that secured creditors are paid at least as much as the value of the collateral securing their loans. An experienced attorney can help guide you through these negotiations or the cramdown process.

Chapter 11 can create uncertainty for potential investors, but if handled properly, it can also signal that you’re taking proactive steps to reorganize and stabilize the business. Many investors understand that Chapter 11 is a legal tool to reduce debt and emerge as a healthier company. A well-executed reorganization plan can make your business more attractive to future investors by lowering liabilities, streamlining operations, and improving cash flow. Transparency with investors about your recovery strategy and post-bankruptcy goals is key to restoring confidence.

In most cases, Chapter 11 bankruptcy is designed to protect the business entity, not the personal assets of its owners. However, if you’ve personally guaranteed any business debts, those guarantees could put your personal assets at risk, depending on how they’re handled in the reorganization plan. It’s possible to negotiate the treatment of personal guarantees in Chapter 11, and in some cases, those obligations can be restructured or even discharged. Additionally, sole proprietors may find their personal assets more entwined with their business, so it’s critical to work with your attorney to assess and protect your personal liability.

Yes, a business can file for Chapter 11 even if it is still profitable but struggling with unsustainable debt. In some cases, businesses may generate positive revenue but find that high debt service, vendor obligations, or other liabilities are choking cash flow. Filing for Chapter 11 can give a profitable business the breathing room it needs to restructure debt, renegotiate contracts, or shed unprofitable assets without shutting down operations. The goal is to emerge from Chapter 11 in a stronger financial position, able to continue turning a profit without the same debt pressures.

Employee wages and benefits typically continue as normal during a Chapter 11 bankruptcy, and these obligations are given priority in the reorganization plan. This means that employees will generally be paid for their work and retain their benefits, such as health insurance, during the bankruptcy process. However, if the business has back wages or unpaid benefits owed to employees before filing, those may be treated as priority claims, meaning they are paid before other unsecured debts. If layoffs or changes to employee benefits are part of the reorganization, those decisions must be approved by the bankruptcy court.

If your business cannot meet the obligations outlined in the reorganization plan, you may have the option to modify the plan with court and creditor approval. However, if the financial situation deteriorates to the point where reorganization is no longer feasible, the case could be converted to a Chapter 7 liquidation. In Chapter 7, the business would be shut down, and its assets sold to pay creditors. It’s important to monitor your business’s performance closely during Chapter 11 to ensure you stay on track with your repayment obligations. Working with an attorney and financial advisor can help you adjust strategies if challenges arise.