According to statistics from the American Bankruptcy Institute, Florida saw the second-most bankruptcy filings in the nation between January and June 2021 — 16,350, behind only California’s 22,411. The vast majority of these were liquidation filings, known as Chapter 7s, which stood at 74%, followed by Chapter 13 personal reorganizations at 24%. Chapter 11 plans, which largely involve businesses, came in at 1.39%, for a total of 227 filings.
How much of this activity is a result of difficult times created by the COVID-19 pandemic is hard to know, but ABI statistics show that 2021 filings are down 15% from the same period in 2020.
If your business is facing insolvency, Chapter 11 of the U.S. Bankruptcy Code provides a viable means to retain your business, reorganize your operations and finances, and emerge at the other end as a healthy enterprise once again.
The Law Offices of David K. Blazek, P.C. has helped countless individuals, families, and businesses get back on their feet through bankruptcy. Based in Tampa, the firm also serves clients in Miami, Jacksonville, Orlando, or anywhere else in Florida, as well as in Atlanta, Macon, and Columbus, Georgia.
A Chapter 11 filing is similar to an individual or family reorganization filing under Chapter 13, except that it is more time-consuming and complicated. Chapter 13 allows the filer to retain all or most assets, so long as they can consolidate and pay off all outstanding debt within three to five years, often at reduced amounts and a lower interest rate.
Chapter 11 is mostly used by corporations, partnerships, limited liability companies (LLCs), and sole business proprietors, though wealthy individuals who exceed the debt ceiling of Chapter 13 can also use Chapter 11.
A business can voluntarily choose to file under Chapter 11, or creditors can impose a bankruptcy petition on the business. The filing can take place where the business is physically located or where it is domiciled, i.e., incorporated or otherwise organized.
Chapter 11 allows debtors to create a financial plan for survival and continuation, which can include modifications to interest rates, reduction in debt load, and downsizing to free up assets and lower expenses. Along with the reorganization plan, the debtor must also submit a disclosure statement summarizing all debts, assets, and obligations.
As with all other forms of bankruptcy filings, Chapter 11 includes an immediate “automatic stay,” which stops all debt collection and repossession/foreclosure activities while the debtor devises a plan to satisfy all obligations. The filer has four months to propose a plan, but the court can extend that deadline for up to 18 months. Unlike Chapter 13, the plan does not have to meet a mandatory repayment obligation of three to five years.
Another major difference between Chapter 13 and Chapter 11, other than the sheer size of assets and debts involved, is that the filer becomes a “debtor in possession” and continues to operate their business as usual, with some restrictions.
Also, no trustee is appointed to oversee the reorganization unless the court deems one necessary because of malfeasance or incompetence. The reorganization plan submitted must be approved by a committee of creditors and by the court. If they disapprove, the company (or individual) can be pushed into Chapter 7 liquidation.
Because of the cost and time involved in a Chapter 11 filing, small businesses generally shunned it until the introduction of Chapter 11, Subchapter V. Small business filings are now much less onerous. For one, the creditor committee requirement has been eliminated. This was accomplished through the Small Business Reorganization Act of 2019 and later modified by the CARES (Coronavirus Aid, Relief, and Economic Security) Act of 2020.
If creditors object to the proposed plan, the court will weigh several factors. Remember, the creditors can force the debtor into Chapter 7 but the court must agree. When there are creditor-debtor disputes, the court will consider:
Feasibility: Will the plan work? Will the debtor be able to raise sufficient revenue to cover expenses and creditor obligations as modified?
Good Faith: The plan cannot be a devious or illegal end-run around debt and other obligations. It must be sincere.
Best Interest: Creditors must be paid at least as much as they would receive under a Chapter 7 liquidation. In some cases, the plan may be deemed to be paying the creditors too little given the resources available. At other times, the debt load can be reduced to a fraction and still be in the “best interest” of the creditor.
Fair and Equitable: This means secured creditors must be paid at least the value of their collateral. Unsecured creditors must receive or retain property equal in value to their allowed claim amount, or if not, then no shareholder or owner can receive any distribution under the plan.
When you're facing insolvency, turn to The Law Offices of David K. Blazek, P.C. to file for Chapter 11 bankruptcy. As your dedicated bankruptcy attorney, attorney Blazek relies on more than two decades of experience to help you with the bankruptcy process.
With his experience, background in finance, and commitment to each individual client, he will guide you through the entire Chapter 11 bankruptcy filing process, including the preparation of the disclosure statement and reorganization plan.
If you're ready to take a step toward financial freedom, call The Law Offices of David K. Blazek, P.C. The team will listen to your story, educate you on your options, and give you the tools you need. The firm serves clients in Miami, Jacksonville, Orlando, or anywhere in Florida, as well as in Atlanta, Macon, and Columbus, Georgia.