Filing for a Chapter 11 bankruptcy can be a long process. It involves multiple hearings in order to finalize the reorganization of your business and debts.
Below is a brief summary of the main steps.
- Gathering your documents: Compile a list of all your company’s assets, expenses and debts and incomes. You will need this information for the Chapter 11 petition. During the Chapter 11 process you also will need to prepare and file monthly operating reports that detail your income and expenses for each month. If the court approves, the month operating reports can be completed by an accountant.
- The petition: The first step in the formal Chapter 11 process is filing a petition with a bankruptcy clerk’s office. The filing of the petition brings about an automatic stay, which prevents creditors from continuing collection efforts against you or your business. Creditors will receive a “Notice of Bankruptcy” and must stop collection activities. The date of the petition filing is important because it distinguishes how debt should be classified during and after the bankruptcy process.
- Meeting of creditors: Before the meeting of creditors, you may need to attend an initial debtor interview. During the interview, a U.S. Trustee may meet with you to make sure you understand your financial responsibilities. The meeting of creditors is a public hearing where creditors can question you about your bankruptcy petition. Creditors can only ask you reasonable questions related to the debt you owe them. The meeting is often called a “341 meeting” and takes place 30-40 days after your petition was filed.
- Disclosure statement and hearing: After the meeting of creditors, you need to file a disclosure statement with information about your financial affairs and a proposed plan of reorganization with the court. The proposed plan of reorganization outlines how each creditor will be classified and treated. Creditors can be classified as a priority debt creditor, a secured debt creditor or an unsecured debt creditor. Creditors can oppose the plan or their classification, but you can file a motion asking the judge to force the creditor to accept the plan. Additionally, you must send copies of both the plan and disclosure statement to all of your creditors. These need to be approved by the court during a hearing.
- Confirmation hearing: During this hearing, the judge must approve your plan for reorganization. Before the hearing you must get acceptances of the plan for each of your creditors. If a creditor does not accept the plan, you can request the creditor accept the plan by force. If you do not have a unanimous acceptance of you plan by creditors the confirmation hearing will need to be rescheduled. If the you and the creditor cannot come to an agreement, the judge will make a decision at the rescheduled confirmation hearing.
- Making payments and discharge of debts: After the confirmation hearing, you must begin payments to the creditors according to the approved reorganization plan. Once you make all the required payments to your unsecured creditors you can ask for a discharge of debt from the remaining unsecured debts. The discharge prevents creditors from making collection efforts on the remaining debt.
Attaining the discharge is the main goal of filing a Chapter 11. Once you reach that point your bankruptcy case is finalized.
