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Chapter 11 Bankruptcy

Be Aware of the Noted Bankruptcies

Be Aware of the Noted Bankruptcies

For companies filing Chapter 11 bankruptcy, it is a pretty safe bet that word will get out to the general public one way or another. If an entity is a small business or regional company, news of a plan for Chapter 11 reorganization may land a business in a local newspaper, or the Local section of a more widely circulated periodical. For major corporations, meanwhile, filing Chapter 11 bankruptcy is national news, something to be included in the Business section of most newspapers, and in some (in)famous cases, the front page.
Some of the biggest businesses in the United States are those centered around energy/utilities and transportation, but just the same, volatile prices and disastrous world events can cause demand and prices to swing wildly from good to bad.
The 2000s were a particularly bad time for a number of America’s biggest airlines given the plane hijackings of 9/11 and spikes in jet fuel costs in the middle of the decade. In 2001, Trans World Airlines filed for Chapter 11 after ceasing operations and assenting to a merger with American Airlines’ parent corporation, AMR. A number of prominent commercial flight services would follow in TWA’s footsteps in the years to come.
The UAL Corporation, owner of United Airlines, applied for Chapter 11 reorganization in 2002 and remains one of the biggest (in terms of assets) companies to do so in U.S. history. In a particularly striking fashion, meanwhile, Delta Air Lines and Northwest Airlines announced they were filing Chapter 11 bankruptcy in 2005 within an hour of one another, imaginably causing a sensation in the business world.
Some Chapter 11 reorganization plans are particularly notable for the circumstances they accompany. In February 2001, Enron Corporation, a major energy enterprise based in Houston, Texas, filed for Chapter 11 bankruptcy, the largest at the time of its filing.
The details of the bankruptcy order, though, have been lost somewhat in the scandal that ensued some months after when it was discovered that the company was the source of willful accounting fraud regarding its practices, prompting an investigation by the SEC, the eventual failure of accounting giant Arthur Andersen, and the enmity of the American people, who saw this fiasco as an exemplar of corporate avarice.
The only significant silver lining of the so-termed “Enron scandal” was the passage of the Sarbanes-Oxley Act of 2002, which enacted new standards for public companies and accounting firms in the United States.

Make Sure You Understand Chapter 11 Purpose and Usage

Make Sure You Understand Chapter 11 Purpose and Usage

To the general bankruptcy public, Chapter 11
filings will not be a major concern. Though technically possible for
individuals, filing for Chapter 11 is much more common for corporate
entities. Thus, unless they are business executives or sole proprietors, Chapter
11 filings will
fall outside the realm of interest for most
people.

 

Still, in terms of absolute incidents of filing for Chapter 11, over 10,000 petitions for
reorganization are filed in the United States per year, which is a significant
and fairly high amount. Therefore, it can be said that Chapter 11 bankruptcy
has a real function in the American economy.

 

Some notes on the prominence and purpose
of Chapter 11 filings today:
         

As with other forms of bankruptcy, filing for
Chapter 11 can be at least in part defined by what it is not. In contrast with Chapter
7 bankruptcy
, Chapter 11 seeks a reorganization rather
than liquidaton of assets.
 Then
again, it may be a creditor or creditors who wind up filing for Chapter 11
bankruptcy on behalf of their debtor. This is not merely a magnanimous gesture
on creditors’ part, though.

 

As voluntary Chapter 11 filings are
usually sought to put a hold on the the demands of lenders, compulsory
petitions are essentially a means to an end. That is, they are in response to a
claim for monies owed to creditors that heretofore have gone unanswered. In
filing for Chapter 11 then, the goal of creditors is to reach an equitable
solution for the return of as much of their loaned funds as possible.

        

Regardless of whoever makes the initial
request, Chapter 11 filings are designed to allow a business to keep
running while it and its debt
are
reorganized. Of course, in cases of questionable leadership, the permission of
companies to remain in action, often with little to no punishment for the
offending officers, is reasonably questionable in its own right. Nonetheless,
sometimes filing for Chapter 11 may be
a saving grace to employees and stockholders alike. For
instance
, Chapter 11 proceedings may be used to
transfer ownership to a new, more capable owner, in the process saving jobs.
Reorganization may also be worthwhile in maximizing a company’s value prior to
the sale of its parts.

Quick Overview of Chapter 11 Bankruptcy

Quick Overview of Chapter 11 Bankruptcy

While Chapter 11 bankruptcy will not apply to a region as geographically large as a county or city, the implications of such an order may nonetheless be big news, and all the same will involve millions, if not billions, of dollars in assets. Chapter 11 bankruptcies, also known as corporate reorganization, business reorganization, or simply reorganization, are not that common. However, some of the biggest examples are well known to most adult consumers.
Seeing as so many employees, investors and users of corporations’ services have a lot riding on their survival, the failure of these companies and subsequent bankruptcy applications tends to draw the ire of the general public more than any other form of bankruptcy, some of whom regard Chapter 11 largely as a symbol of corporate greed and incompetence. Politics aside, given the stakes in many cases, the importance of Chapter 11 bankruptcies is hard to deny.
Some general notes about Chapter 11 bankruptcy in the United States:
With so many types of business/corporations in the United States, there are a number of different types of Chapter 11 bankruptcies for companies, or at least different circumstances for some kinds of organizations. One such special category is the the small business debtor, defined by engaging in commercial activities and owing debts of under $2.19 million. Chapter 11 filing may also be a reality for the “single asset real estate” debtor, who makes a majority of his or her earnings through upkeep of one piece of property with four or less residential units.
Meanwhile, for sole proprietorships and partnerships, Chapter 11 bankruptcies may have some significant ramifications. As for Chapter 11 proceedings for the individual debtor, if they go unconverted, they will be most easily comparable to Chapter 13.

5 Steps to Filing for Chapter 11 Bankruptcy

5 Steps to Filing for Chapter 11 Bankruptcy

Chapter 11 Bankruptcy

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is one of the most commonly utilized forms of reorganization for those that have excessive debt which they cannot pay off. Individuals and corporations, regardless of type, may use Chapter 11 bankruptcy.
Businesses that declare Chapter 11 bankruptcy are often able to remain operating. However, the courts may have jurisdiction over that business to be certain that it is being run properly and that it does not create further debt during those operations.
Businesses that declare Chapter 11 bankruptcy must submit a plan to the courts. That plan may include payment to some creditors, while others receive none. This plan is put into place to allow the business to continue to operate, while preventing creditors from taking control of the company’s assets.
What is Chapter 11 Bankruptcy?
1. Chapter 11 Bankruptcy is a specific chapter in the United States Bankruptcy Code. An entity who files for a Chapter 11 Bankruptcy plan typically does so because its debt (finances they owe to creditors) has severely hampered its business model. 
2. When a business (any form of business model) can no longer pay its creditors—due to a failing business venture or insurmountable debts—it may file for Chapter 11 Bankruptcy to alleviate its debt obligations. All Chapter 11 filings are initiated by local bankruptcy courts. These plans offer protection under Chapter 11 of the United States Bankruptcy Code. 
3. A business entity which files for Chapter 11 bankruptcy does so with the intention to continue trading or operating while the Bankruptcy Court supervises and distributes its debts and contractual obligations. Through this program, the business entity has the potential to obtain a fresh start and remove itself from the constraints of its previous debt obligations. 
4. Chapter 11 Bankruptcy legally permits a reorganization of the business structure and the underlying debts attached. This form of bankruptcy is available to all forms of businesses (sole proprietorships, corporations, general partners, limited liability companies, etc.) and effectively offers a number of tools and resources to alleviate the struggling business’ debt obligations.
5. A Chapter 11 filing empowers the bankruptcy trustee to operate the debtor entity’s business model. In addition, the program enables the debtor entity to acquire alternative avenues for financing and loans attached with favorable terms. In turn, these new lenders are promised first priority on the business’ earnings. 
6. Furthermore, a Chapter 11 filing protects the business entity from any subsequent forms of litigation seeking to recoup the company’s finances for means of settlement.
7. In essence, a Chapter 11 filing re-organizes and re-structures the entity’s business model to streamline debt payments. During this reconstruction, however, the company retains its core characteristics and maintains its ability to carry out its unique product or service.

Filing for Chapter 11 Bankruptcy
1. Before filing for a Chapter 11 Bankruptcy, you must be sure that the options and advantages outlined in this specific bankruptcy plan fit your individual as well as your business’ needs. To effectively evaluate the benefits of a Chapter 11 Bankruptcy filing, you must compare and contrast all available forms of bankruptcy options. 
2. After evaluating your different options, you must incorporate a bankruptcy lawyer into your legal filing. Filing a Chapter 11 bankruptcy is a complex legal process; a Chapter 11 filing can take a number of years. As a result, you must engage a legal professional who specializes in bankruptcy law. 
3. You must file once in a six-month period. The local Bankruptcy Court will not permit you to file for a Chapter 11 Bankruptcy if you refused to comply with a repayment schedule or you did not show up for a hearing during the previous 6 months.
4. You must gather all financial information and documentation needed for a Chapter 11 Bankruptcy filing. You must file a list of all liabilities, assets, income, and expenditures associated with your business model. 
5. Once all the information has been filed, you will meet with your creditors and file various reports to elucidate upon a financial situation. At this time, you may file a repayment plan during the first four months—after this time your creditors will be able to execute their own plans. 


Consider the Criticisms Against Implicit Leniency

Consider the Criticisms Against Implicit Leniency

If in the act of filing Chapter 11 bankruptcy it is judged that a petition is entered in bad faith, bankruptcy court proceedings may end in the case’s dismissal. Just the same, in the event large corporations prove insolvent, the instability that would result from their collapse would be a shock to the country’s economic backbone, and as such, they warrant Chapter 11 protection. Yet this does not assume that filing Chapter 11 bankruptcy is not still controversial in some regards.
Often, a company and its chief officers seeking Chapter 11 protection reawakens seemingly inherent societal conflicts in reactions to the news, as well as economic and ethical concerns. Indeed, there are numerous criticisms of Chapter 11 practice as it stands. Some notes on issues with filing Chapter 11 bankruptcy:
From a logistical and financial standpoint, some critics of special Chapter 11 protection for debtors stems from the unfair conditions it creates for creditors to recoup on bad investments. Specifically, filing Chapter 11 bankruptcy would seem to at least partially invalidate the concept of collateral.
After all, collateral – monies or assets offered in securing a loan that go to the lender in the event of a default – is meant as a safeguard for creditors. With the notion that collection actions can be delayed or deferred under the doctrine of automatic stay, however, that safeguard may be effectively neutralized. Thus, companies may be given an opportunity to shed their sense of responsibility in both investing and repaying funds.
Along similar lines, the Chapter 11 protection offered to debtors to allow them a grace period to formulate a reorganization plan may be unduly exploited. As noted, a stay on debt collections affords corporations time to regroup and prevents them from shutting down operations, but it also affords them an unfair advantage over their competitors of not having to repay monies and cutting prices on services to the consumer. In other words, in both economic and metaphorical terms, filing Chapter 11 bankruptcy may buy insolvent companies considerable leverage.
Additionally, Chapter 11 protection is seen by many as unjust protection for a company’s officers, especially in light of mismanagement of assets and improper conduct. Certainly, some disenfranchised members of the public may simply be looking for revenge and would have the “higher-ups” of a corporation punished through forced liquidation of their personal assets for losing their jobs or money, as well as a manifestation of the divide between the upper and lower class in the United States.
Even so, the idea that those who were in many ways responsible for the downfall of their businesses could be permitted to keep doing business and helm their organization seems, at best illogical. At worst, it is a reward for incompetence.

Importance in Recent Economic Climate

Importance in Recent Economic Climate

Once upon a time, Chapter 11
bankruptcies in the United States may have been an afterthought for many
Americans
; something more remote or abstract. However,
when their favorite store or restaurant chain recently went out of business,
the theoretical decision to file Chapter 11 bankruptcy suddenly became very
real. It is not as if Chapter 11 bankruptcies are only happening in one
section of the country.

 

Amid the recession, businesses are failing to
meet their debts or are just failing period, and not just in retail and food
service, but in a number of important industries. In short, everyone is feeling
the pinch from the hurting economy, and as companies continue to file
Chapter 11 bankruptcy, the effects 
are
felt by consumers.
        

 

Oftentimes, the move to file Chapter 11
bankruptcy by a corporation is a precursor to its disappearance as known and/or
the eventual liquidation of its assets. Indeed, both Chapter 11 bankruptcies
and closures have risen in incidence since news of the recession first began to
inundate news reports, and a
s a result, a
“Catch-22” situation of sorts has ensued.

 

With companies going under and thus fears of
inability to maintain solvency ever-present, consumer confidence has taken a
toll, and Americans are striving to save where they can. However, in doing so,
they are hurting an already damaged U.S. economy so critically dependent on people
spending money, and yet more businesses are forced to shut down. Truly, the
need for individual organizations to file Chapter 11
bankruptcy creates a vicious cycle for consumers and producers.

         

It must be stressed that Chapter 11
bankruptcies do not always lead to companies going out of business. After
all, to file Chapter 11 bankruptcy is to attempt to reorganize a
business/estate so that it will be able to keep its head above water.
Nonetheless, even though a store or other corporate entity may not go out
completely, it may still be forced to close certain branches that are under
performing in these uncertain times. As these
subdivisions go, not only do the customers, but
also the employees.         

 

The lack of consumer confidence coupled with
the unexpected job losses have certainly affected companies and individuals in
the here and now, but long-term goals are also being impacted by the current
climate. Concerning pre-recession projects, numerous public works and housing
developments have had to be halted mid-stream because funding has run out from
the agency or individuals that were supposed to be sponsors. Moving forward,
the collateral damage from so many decisions to file Chapter 11
bankruptcy has hurt families’ dreams of home ownership
.

Need to Know Governing Laws of Chapter 11

Need to Know Governing Laws of Chapter 11

Like the other forms of bankruptcy relief,
but to a larger extent, Chapter 11 law is supplemented by the Federal
Rules of Bankruptcy Procedure, which are handed down to bankruptcy courts by
the Supreme Court
. The Federal Rules of Bankruptcy Procedure govern legal events, such as adversary litigation in bankruptcy matters, time
constraints for motions to be filed, and conditions for appeal to a higher
court.

         

Currently, and like the other forms of bankruptcy relief, Chapter
11 law itself is housed within Title 11 of the United States Code. Chapter
11 bankruptcy law is composed of four subchapters that deal with specific
aspects of corporate reorganization proceedings. The first deals with the
logistics of Chapter 11 bankruptcy proceedings, namely the roles and
responsibilities of each party involved, if applicable. The second is concerned
with the formation, discussion and confirmation of a reorganization plan. The
third is devoted to typing up post-confirmation loose ends, and the fourth
deals in particular with railroad reorganization, perhaps showing the age of
the laws that influenced the chapter as a whole.

      

As for those predecessors to Chapter 11
law, it should be noted that the component parts of Chapter 11 bankruptcy
law were once separate subsections of the Bankruptcy Code. They were
united into Chapter 11 law as we know it today by virtue of the Bankruptcy
Reform Act of 1978
.

Short Guide to Chapter 11 Filing Process

Short Guide to Chapter 11 Filing Process

Though some parts of U.S. law are more ambiguously defined, with regard to filing for Chapter 11, Bankruptcy Code language is fairly explicit as far as the specifics go. For one, Chapter 11 as a physical document clearly outlines who may and may not be considered eligible to file for bankruptcy according to its terms. In fact, the rights and responsibilities of all parties of interest and interested parties (including contributors and shareholders) in these matters are considered by Chapter 11 Bankruptcy Code.
The general petition must be completed and submitted to a bankruptcy court that is fit to hear a company’s case. Chapter 11 Bankruptcy Code, like other versions of the Code for other chapters, requires certain information be provided by debtors to initiate proceedings, namely all contracts and leases, income vs. expenses, possessions owned vs. monies owed, and an overall statement of finances.  
Though not nearly as common as in Chapter 7 or 13, couples who file for bankruptcy under Chapter 11 will also be permitted to file jointly or as separate individuals. In the majority of cases, applicants submitting such a request for relief will automatically become “debtors in possession” and will be the primary determinants of their affairs, as the role of trustee will be all but rendered moot.
Another commonality between the laws of other chapters and those of the Chapter 11 Bankruptcy Code is that they insist on the formation of a plan on the part of debtors. In the interest of reorganization, under Chapter 11 debtors trying to get out of bankruptcy must outline how they will restructure their companies (in the case of businesses) and how they will address the claims of creditors for compensation for existing debt.
Where Chapter 11 is more unique, though, is what it states must accompany a plan. For debtors, a “disclosure statement” is needed to relate the aforementioned financial information to creditors to see if the plan warrants acceptance. As for creditors, if they will not stand to collect on the full balance of monies owed to them, they must vote on the plan by ballot.
Along with the numerous forms that the Chapter 11 Bankruptcy Code takes into consideration are all the special circumstances that may affect the events leading up to confirmation. Coincidentally, both current fiscal policy and Chapter 11 recognize the importance of survival for small businesses. Bankruptcy court proceedings for small business debtors involve an extra interview with and additional oversight by an appointed trustee.

Learn About Chapter 11 Statistics

Learn About Chapter 11 Statistics

The casual observer might only become aware
of the more prominent Chapter 11 filings in America through television
reports or newspaper stories, and consequently, think that they are exceedingly
rare. Especially in the wake of the recession affecting the United States, though,
accounts of corporations filing for Chapter 11 bankruptcy seem to be
coming regularly
.         

 

Chapter 11 bankruptcy, which is also known as
corporate reorganization, is meant for the reallocation of assets to manage a
debt repayment plan, and is therefore much more often requested by businesses
than individuals. Of more than 14,000 filings under Chapter 11 in 2009 in
the United States, over 90% were a result of voluntary applications by
executive officers or involuntary calls for reorganization by creditors and
others. As for regional differences, as with Chapter 7 filings, Chapter 11
bankruptcy is highest in the Ninth Circuit and lowest in the First.

         

As of late, trends in Chapter 11
filings are a point of worry to many. Only two (fiscal) years ago, the
total number of Chapter 11 bankruptcy petitions was less than 6,000. Come
2009, this annual sum jumped to over 14,000. Basic math will tell you that the
amount of requests for reorganization have more than doubled in this time, and
realistically, is a short span for such a profound increase to occur. Overall,
the insolvency of numerous companies as demonstrated by these spikes and those
of Chapter 7 rates is of little solace to those who have lost their jobs to the
need of organizations to balance their debt.

         

In terms of the most costly Chapter 11 bankruptcies
of all time, certain industries tend to jump out at one upon review. Perhaps
ironically, and symbolized by Lehman Brothers’ collapse as the
biggest Chapter 11 bankruptcy of all time, financial services corporations
have dotted the bankruptcy landscape. Telecommunications (e.g. Worldcom, MCI),
energy/utilities (e.g. Enron, Texaco), and automotive/transportation (e.g.
General Motors, Delta Air Lines) have also contributed to make up the majority
of cases where companies with billions of dollars in assets were for a time
insolvent and/or shut down for good.