Chapter 11—just the sound of it evokes strong feelings in most people. Although filing for bankruptcy is rarely a business's first choice when trying to cope with overwhelming debt, the decision to file for bankruptcy can be the right one when made with full awareness of all its consequences. Contact our firm to schedule a consultation with an experienced bankruptcy lawyer to discuss your options.
Chapter 11 Bankruptcy for Businesses in Nevada
If you are considering reorganizing your business debts and protecting your assets and investments in Chapter 11 bankruptcy in Nevada, the capable attorneys at John Peter Lee, Ltd., in Las Vegas can help you evaluate your options and develop a sound reorganization plan.
We will assist you in dealing with the U.S. Trustee's office and your creditors. Even after filing is complete, we can guide you in taking the appropriate steps to successfully complete the reorganization. Contact us today to schedule a free and informative consultation with an experienced lawyer at our Las Vegas offices.
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Chapter 11 Frequently Asked Questions
Q: How is a Chapter 11 case commenced?
A: A Chapter 11 case is initiated when a petition is filed in the bankruptcy court for the area in which the debtor resides or is domiciled. A Chapter 11 case may be initiated by a debtor (voluntary Chapter 11) or a creditor (involuntary Chapter 11). In addition to the petition, a case filing fee and an administrative fee must be paid to the clerk when the petition is filed or in installments. If the filing fees are to be paid in installments, there can be no more than four installments and the final installment must be paid no later than 120 days after the petition is filed.
Q: In a Chapter 11 case involving a business, who runs the debtor's business while the bankruptcy case is pending?
A: In most Chapter 11 cases, the debtor assumes the status of Debtor in Possession (DIP) and continues to run the business in that capacity until confirmation of the Chapter 11 plan. In some cases, a trustee will be appointed by the court to run the debtor's business and perform other tasks required by law or court order. While the case is pending, a DIP is generally also responsible for accounting for property; examining and objecting to claims; filing required reports with the bankruptcy court; employing attorneys, accountants, appraisers, auctioneers, and other professionals to assist with case; and filing tax returns.
Q: What are "first day orders?"
A: First day orders are orders the debtor wants the bankruptcy court to enter as soon as the petition is filed or as soon as possible after the petition is filed. First day orders often involve administrative or noncontroversial matters such as notices and orders relating to the appointment of professionals. First day orders are also used to ensure that business operations may continue and may include orders to obtain post-petition financing, orders to allow the payment of wages earned prepetition, and orders to allow payments to creditors for goods and services provided prepetition.
Q: What is a trustee?
A: In some Chapter 11 cases, a trustee may be appointed to fulfill the duties of the debtor, including managing the debtor's property, operating the debtor's business, and filing the debtor's plan. A trustee can be appointed by the court at any time prior to plan confirmation if requested by any party in interest or the US trustee and there is "cause" (fraud, dishonesty, gross mismanagement, or incompetence of the debtor) or it is "in the interest of creditors, any equity security holders, and other interests of the estate" to appoint a trustee.
Q: How does a debtor obtain funding to finance business operations after filing a petition for Chapter 11?
A: In general, a debtor may not use prepetition lines of credit to fund ongoing business operations and must rely on funds generated from post-petition operations and new extensions of credit to finance post-petition business operations. "Cash collateral" (cash in which a creditor has an interest and cash derived from property in which a creditor has an interest) may not be used by the debtor in post-petition business operations without prior consent of the creditor or authorization of the court. Post-petition extensions of credit and sales on credit to debtors in possession ("DIP financing") are typically allowed, but such credit arrangements are subject to the limitations and requirements provided in the Bankruptcy Code.
Q: Who can file a Chapter 11 plan?
A: A Chapter 11 plan may be filed at the same time as the petition or at a later date. Typically, only the debtor may file a plan for the first 120 days after the filing of the petition, and if the debtor files a plan within 120 days, no other plan may be filed for the first 180 days after the filing of the petition. 11 USCA §§ 1121(b), (c)(3). The 120- or 180-day period is known as the debtor's exclusivity period. After the debtor's exclusivity period has expired, any creditor or the trustee may file a plan. More than one plan may be filed and accepted, but only one plan may be confirmed by the court.
Q: How is a Chapter 11 plan accepted?
A: Plan acceptance is determined by a vote of creditors with allowed claims and shareholders with allowed interests. A plan is accepted by a class of claims if it is approved by more than 1/2 of the total claims and at least 2/3 of the claims actually voting. 11 USCA § 1126(c). A plan is accepted by a class of interests if it is approved by at least 2/3 of the interests actually voting. 11 USCA § 1126(d).
Q: What is "cram down?"
A: Cram down is a process by which the court may confirm a plan that has not been accepted by every class of claims and interests. In general, a court may "cram down" a class and order confirmation if at least one class of claims impaired under the plan has accepted the plan, the plan does not discriminate unfairly, and the plan is "fair and equitable."
Q: How is a Chapter 11 converted to a Chapter 7?
A: If the debtor is a farmer or a "corporation that is not a moneyed, business, or commercial corporation" (charitable institution), the debtor may request conversion to Chapter 7. In all other Chapter 11 cases, either the debtor or a party in interest may request conversion to Chapter 7. A Chapter 11 debtor has a one-time right to convert to a Chapter 7 liquidation case unless the debtor is not a debtor in possession (DIP), the case was originally commenced by an involuntary petition, or the case was previously converted to Chapter 11 at the request of a party other than the debtor. If the request to convert the case to a Chapter 7 is not made by the debtor, the party in interest who is requesting the conversion may only make the request "for cause" and the court may only order conversion if doing so is in the best interests of creditors and the estate.
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