Chapter 11 Bankruptcy

Filing for Chapter 11 Bankruptcy in New Jersey

Chapter 11 bankruptcy is often referred to as a “reorganization” bankruptcy, and is filed when a business seeks to reorganize its operations in the hopes of increasing its cash flow. This differs from a Chapter 7 bankruptcy, in which a business would sell off its assets in order to pay off its creditors.

Bankruptcy Piggy BankThe most common reason for filing Chapter 11 bankruptcy is that the value of the business is believed to be greater than the sum total of its individual assets. This form of bankruptcy allows the business to continue operating while a reorganization plan is put in place.  A plan of reorganization must be filed with the U.S. Bankruptcy Court, detailing how the business will return to solvency and the precise debt settlement amount that will be paid to each creditor.

A small business bankruptcy under Chapter 11 allows the company to continue operations, keep its employees and hopefully emerge as a profitable business in the end. In order for a company to emerge from bankruptcy, it must complete the payments and transactions as proposed in its plan of reorganization. This process can take up to several years, especially for large corporations.

Where Do I File for Chapter 11 Bankruptcy?

In New Jersey, a petition for Chapter 11 bankruptcy would be filed in one of New Jersey’s Bankruptcy Courts. These are different from municipal or county courts, since they are governed by the United States Federal Courts system. New Jersey has 3 bankruptcy courts, located in the cities of Camden, Newark and Trenton.

Hire an Experienced Lawyer to Help with Your Bankruptcy

The U.S. Bankruptcy Court website advises, “because bankruptcy can have serious long-term financial and legal consequences, including loss of your property, you should hire a lawyer and carefully consider all of your options before you file.” In addition, since any slight error in your filing can cause your petition to be denied, it is recommended that you retain the services of an experienced New Jersey bankruptcy lawyer.

Forms and Procedures for Chapter 11 Bankruptcy

There are two sets of forms that must be filed for a Chapter 11 bankruptcy. One set is referred to as the “official forms”, and are required by the United States Courts system. This package includes forms titled the Voluntary Petition, Declaration Under Penalty of Perjury on Behalf of a Corporation or Partnership, and List of Creditors Holding 20 Largest Unsecured Claims.

The court is required to assess a filing fee of $1,213, which includes a $46 administrative fee. These fees must be paid to the court clerk upon filing, or paid in installments with the court’s approval. Please be aware that failing to pay your fee installment can result in having your case dismissed.

Avoid a Dismissal of Your Chapter 11 Proceeding

There are other reasons for which the court may dismiss your case. Failing to file forms and mandated reports in a timely manner is a typical reason for dismissal. Also, failure to attend a meeting of creditors or failure to disclose a statement are also reasons to dismiss a bankruptcy case. Since there are many forms and reports that must be submitted to the court on an on-going basis, it is best to entrust your case to a knowledgeable bankruptcy attorney.

Filing a Plan of Reorganization

A plan of reorganization must be filed within 120 days after the filing date of the Chapter 11 bankruptcy petition. However, you are granted 180 days after the petition filing date to obtain acceptance for your plan. These deadlines can be extended due to special circumstances that an experienced bankruptcy attorney will be knowledgeable of.

Sticking to your plan deadline is very important, since if you do not obtain acceptance in time, your creditors may file their own plan. This can cause serious delays in your bankruptcy proceedings, since the court will have to evaluate both plans. Also, in the case of choosing between two competing plans, the court must consider the preferences of the creditors over that of the debtor.

Drafting and filing a reorganization plan is a time-consuming process, since there are no limits to how often a plan can be modified before final confirmation. Modifications are accepted by the court if it is determined that such modifications will not have an adverse effect on the claims of the creditors. If the court determines there may be adverse effects on the claims of the creditors, a balloting will be required in order to pass the modification.

Case Dismissal vs. Conversion

You may file a motion at any time to have your bankruptcy case dismissed, although the court has the right to deny your request. You also have a one- time chance to request for a conversion, in which a Chapter 11 bankruptcy is converted to a Chapter 7 bankruptcy.

If filing for a conversion, you must show “cause”, such as proof that there is a continuing loss to the business, and that any form of recovery is highly unlikely. If a cause is established, the court will either dismiss or convert a case, depending on what it determines to be in the best interest of the business and its creditors. A court can also forcibly convert or dismiss your case for reasons such as failure to fulfill court requirements in a timely manner, failure to file post-petition returns, and inability to consummate a confirmed reorganization.

There are special exceptions in which a Chapter 11 case cannot be converted into a Chapter 7 bankruptcy, unless the request is specifically made by the debtor. Under Section 1112(c) of the Bankruptcy Code, there is a provision which prohibits the forcible conversion of cases involving farmers or charitable institutions.

Experienced New Jersey Bankruptcy Lawyers

Filing for Chapter 11 bankruptcy is a complex process, requiring legal knowledge. The United States Court system strongly recommends hiring a bankruptcy lawyer to handle your Chapter 11 bankruptcy filing.  If you are in need of a knowledgeable bankruptcy attorney in the state of New Jersey, consider Villani & DeLuca. A free consultation will help you fully understand your rights and protect your assets. Call (732) 965-3390 today!