Chapter 11 Bankruptcy Information in Kentucky
Chapter 11 Bankruptcy in Kentucky
At O’Bryan Law Offices, we know how stressful it is to have uncontrollable debt while trying to live a happy and fulfilled life. Oftentimes, people feel like they can’t enjoy their lives until they get serious about their finances. A mountain of debt can feel even more hopeless when you have a business on the line that’s bringing in all, or most, of your annual income. That’s why our Louisville bankruptcy attorneys are so passionate about helping our clients achieve a life of financial freedom, even if that means declaring bankruptcy. If you need help in getting control of your debt, call a consumer bankruptcy lawyer at 502-339-0222 today.
NOTE: The attorneys at O’Bryan Law Offices only handle Chapter 7 and Chapter 13 filings currently. Although we do not take Chapter 11 cases, this page exists for educational purposes.
Chapter 11 Bankruptcy Basics
Chapter 11 bankruptcy is one of many bankruptcy proceedings listed in the U.S. bankruptcy code. Chapter 11 basically uses a reorganization plan to help large corporations, large and small businesses, single asset real estate (SARE) owners, and even individuals (in rare cases) pay off debt.
Businesses or corporations who use Chapter 11 bankruptcy protection can certainly make a profit again in the future. But in order to become profitable again one day, the company must:
- Discharge or partially repay debts
- Renegotiate contracts and leases
Both secured creditors and unsecured creditors are motivated to work with the business owner by accepting lower loan repayments and reaching a compromise. These creditors want to work and compromise with businesses in Chapter 11 because they can get better terms and more money than Chapter 7 bankruptcy cases.
Chapter 11 Bankruptcy for Small Businesses
Small business owners who have less than 500 employees can file for Chapter 11 bankruptcy to pay off their secured debt and unsecured debt. Even if small businesses file for Chapter 11, most will either get converted to Chapter 7 bankruptcy filings or dismissed altogether. Generally, this happens because the bankruptcy court decided that the business’s survival is unlikely once the bankruptcy concludes.
Prior to the COVID-19 pandemic, the U.S. Bankruptcy Code set a debt limit of $2,725,625 for a small business debtor seeking to file Chapter 11. Now the limit is $7.5 million or less, thanks to the CARES Act.
Small Business Reorganization Act (SBRA) of 2019
Another result of the ongoing pandemic is subchapter V of the SBRA, which is designed to help small businesses recover from the financial consequences of COVID-19. The SBRA is much quicker and cheaper than a Chapter 11 bankruptcy process because it allows owners to work with a bankruptcy trustee in order to create a solid debt repayment plan.
What is a Reorganization Plan?
A reorganization plan is basically what it sounds like: it’s a plan created by creditors and a bankruptcy lawyer that lays out exactly how a bankrupt business will pay off its financial obligations. The plan must receive bankruptcy court approval, and then the reorganization process will begin. Due to the importance of a reorganization plan in Chapter 11, many people refer to this bankruptcy process as a reorganization bankruptcy.
Reorganization Plan Qualifications
The bankruptcy court will only accept a reorganization plan if it:
- Was created “in good faith.” In other words, a Chapter 11 lawyer and creditors created the plan with good intentions and honesty.
- Is “fair and equitable.” This means that the debtor must at least pay secured creditors their collateral value, and the debtor can’t keep anything until all debts are repaid in full.
- Complies with the bankruptcy code, all state laws, bankruptcy rules, etc.
- Is likely to succeed. In other words, does the plan prove that the debtor can bring in enough revenue to pay various bankruptcy expenses and pay creditors?
- Is in the best interests of the creditors. This means that the plan must allow creditors to receive as much money (or more) than they would if the bankruptcy filing was converted to a liquidation bankruptcy, also known as Chapter 7.
Benefits of Chapter 11 Bankruptcy
Chapter 11 comes with numerous benefits for people and businesses who decide to declare bankruptcy. Benefits include:
- Continuing normal business operations throughout the bankruptcy case
- More time to create a plan in order to pay off secured and unsecured debts
- Allows for further financial reorganization if financial difficulties aren’t improving
- Gives a business owner full control of their business throughout the entire bankruptcy process
Meanwhile, many people and businesses choose against Chapter 11 due to the number of legal fees and how long the process is.
How Much Does it Cost to File for Chapter 11 Bankruptcy in Kentucky?
Chapter 11 bankruptcy filing fees are the most expensive out of all other chapters of bankruptcy, which is why many people and businesses choose a different chapter in order to handle their financial affairs. Compare the Kentucky bankruptcy court fees below.
- Chapter 7: $338 in full or four installments of $84.50
- Chapter 11: $1,738 in full or four installments of $434.50
- Bankruptcy Chapter 12: $278 in full or four installments of $69.50
- Chapter 13: $313 in full or four installments of $78.25
How to File for Chapter 11 Bankruptcy
In order to start the Chapter 11 bankruptcy process, you should start by hiring a bankruptcy attorney. They will walk you through the entire process, ensure that your rights are protected, keep your best interest in mind, and pay off your business debts.
You will start by filing a voluntary petition with your local bankruptcy court. Along with your petition, you will likely have to provide:
- A recent balance sheet
- Cash flow statement
- Recent federal tax returns
- Statement of operations
- Disclosure statement
Every Chapter 11 bankruptcy case is different. Some cases can conclude in only a few months, but most conclude 6 months to 2 years after declaring bankruptcy.
What Decisions Does the Bankruptcy Court Make During Chapter 11 Proceedings?
The court makes the majority of the decisions during Chapter 11 while the business owner, or debtor in possession, keeps the business running. Some of the things that require court approval are as follows:
- Which of the debtor’s assets need to be sold
- Creating or breaking a lease
- Financial arrangements that allow the debtor to receive loans
- Whether the business needs to expand or shut down
- Creating and modifying any business contracts or agreements
- Retaining and using business expenses to pay attorneys and other bankruptcy professionals
How Chapter 11 Compares to Other Chapters of Bankruptcy
Before declaring bankruptcy, it’s important to review all your options for debt relief. In other words, it’s important to compare other chapters of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 is the best choice for bankrupt individuals because it’s fairly affordable, and they get to keep their house and their job throughout the whole process. Individuals are generally required to sell assets during a Chapter 7 case.
On the other hand, Chapter 7 is not the best choice for small businesses, and many don’t undergo this bankruptcy proceeding. Generally, businesses undergoing Chapter 7 will be forced to shut down while not receiving a debt discharge. Small business owners would receive more benefits through this chapter of bankruptcy if they just filed as an individual. That way, they could pay off both business and personal debts.
Chapter 7 may work well for a sole proprietorship. They can undergo the whole process without shutting down their business, and they can receive debt discharges.
Chapter 9 Bankruptcy
Chapter 9 bankruptcy is the most rarely used chapter of bankruptcy because it’s reserved for municipalities. U.S. municipalities include cities, towns, counties, school districts, etc. So Chapter 9 isn’t an option for individuals, businesses, or corporations.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy isn’t ideal for individuals or businesses. In fact, this chapter of bankruptcy is specifically designed for fishermen and family farmers who have regular annual income. Under Chapter 12, farmers or fishermen submit a payment plan to creditors, which generally allows creditors to receive payments over the course of three to five years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy can provide numerous benefits to those who have consistent income and who want to protect their home and other valuable assets. This chapter of bankruptcy can also benefit small businesses, but not large companies or corporations. Stakeholders may file for Chapter 13 individually over the other chapters of bankruptcy because it’s cheaper, and they can keep their business open while paying off their debts.
Call a Bankruptcy Lawyer at O’Bryan Law Offices Today
Declaring bankruptcy is an overwhelming feat. That’s why you need bankruptcy attorneys from O’Bryan Law Offices on your side. We will walk with you through the entire Chapter 7 or Chapter 13 bankruptcy process and answer any questions you may have along the way. Even when your bankruptcy case concludes, we’ll still support you and teach you how to regain control of your finances. We will also support you while your complete your credit counseling and debt counseling courses. Call us today at 502-339-0222 for a free consultation.