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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A Chapter 11 bankruptcy debt reorganization plan will have to be approved by the U.S. Trustee's office and your creditors. The thoughtful and determined advocacy of an experienced attorney can go a long way to ensuring success. Contact the Las Vegas offices of John Peter Lee, Ltd., to schedule a free consultation.
The law firm of John Peter Lee, Ltd., was founded in 1975 to provide sound legal advice and experienced representation to businesses and individuals in Las Vegas and surrounding Nevada communities. Our experience in business and bankruptcy law enables us to offer high-quality service for clients seeking real relief from business debt under Chapter 11 of the Bankruptcy Code. Contact us today.
Obtaining Credit During Chapter 11
The debtor's ability to obtain credit and financing is key to ensuring the continued operation of the business. In general, a Chapter 11 debtor may not use lines of credit extended before the Chapter 11 petition was filed (prepetition) and must instead rely on funds generated from post-petition operations and new extensions of credit to finance post-petition business operations. A bankruptcy attorney at John Peter Lee, Ltd. in Las Vegas, Nevada, can work with a Chapter 11 debtor to pursue financing while the bankruptcy case is pending.
Cash Collateral
The use of "cash collateral" by Chapter 11 debtors and post-petition extensions of credit or sales on credit to debtors are subject to the limitations and requirements prescribed in the Bankruptcy Code. Cash collateral includes cash, negotiable instruments, documents of title, securities, deposit accounts, and other cash equivalents whenever acquired in which the debtor and an entity other than the debtor have an interest. Cash collateral also includes the cash derived from other collateral, including proceeds, products, offspring, rents, or profits. 11 USCA § 522.
The Use, Sale, and Lease of Encumbered Property
In general, property and cash of the debtor is encumbered by liens or security interests at the time the Chapter 11 petition is filed. In bankruptcy, property acquired after the petition was filed (post-petition) is generally protected from prepetition liens and clauses in prepetition contracts which create a security interest in all of the debtor's property owned at the time of the contract or thereafter acquired (after-acquired property clauses) are not recognized. 11 USCA § 552(a). However, a creditor's claim does extend to the accounts receivable, "proceeds, product, offspring, rents, or profits" from the sale or disposition of prepetition collateral or inventory, 11 USCA § 522(b), and there may be restrictions or conditions on the use of such property.
The Use of Encumbered Property that is NOT "Cash Collateral"
Whether a debtor may and the conditions under which a debtor may use encumbered property that is not cash collateral depends on whether the debtor's use of the property is in the ordinary course of business.
- In the ordinary course of business. Unless a request for "adequate protection" has been made, a trustee or debtor in possession (DIP) may use, sell, or lease encumbered property in the ordinary course of business as long as the property is not "cash collateral." 11 USCA § 363(c)(1).
- NOT in the ordinary course of business. Before a DIP or trustee may use, sell, or lease encumbered property that is not cash collateral in a manner that is not in the ordinary course of business, a notice and hearing to ensure "adequate protection" of the creditor is required. 11 USCA § 363(b).
The Use of Encumbered Property that is "Cash Collateral"
When "cash collateral" is used or spent, the entities that have a security interest in the property (secured creditors, lien creditors) are entitled to receive additional protection. A debtor may not use, sell, or lease "cash collateral" unless there is:
Consent by the secured party. A lien creditor may consent to a debtor's use of the property, typically in exchange for:
- A lien on post-petition property / inventory and receivables and
- An administrative expense priority. 11 USCA § 363(c)(2)(A).
Court authorization. If the court determines after notice and a hearing that the collateral is adequately protected, a debtor may use the property as authorized in the court's order. 11 USCA § 363(c)(2)(B).
- In most Chapter 11 cases, the court's authorization is a consent order approving an agreement between a creditor and a debtor
- Prior the court's authorization, the debtor must segregate and account for all cash collateral. 11 USCA § 363(c)(4).
Post-petition Extensions of Credit
Debtor in possession financing, also called "DIP financing" or "section 364 financing," is often the primary source of post-petition funding available to Chapter 11 debtors. Under section 364 of the Bankruptcy Code, a creditor (lender) may extend credit and make sales on credit to a debtor in exchange for an administrative expense priority, special priority, or a senior lien on property already subject to a lien. 11 USCA § 364.
Unsecured Credit
Whether a debtor may and the conditions under which a creditor may extend post-petition unsecured credit to a debtor depends on whether the extension of credit is in the ordinary course of business.
- In the ordinary course of business. In general, a creditor who has authority to operate the debtor's business may extend unsecured credit to a debtor in the ordinary course of business in exchange for an administrative expense priority under section 503(b)(1) for the obligations incurred. 11 USCA § 364(a).
- NOT in the ordinary course of business. A court may authorize a creditor after notice and a hearing to extend credit that is not in the ordinary course of business to a debtor in exchange for an administrative expense priority under section 503(b)(1) for the obligations incurred. 11 USCA § 364(b).
Secured Credit
If a debtor is unable to obtain unsecured credit, the court may authorize a creditor to extend post-petition credit in exchange for special priority or a senior lien.
- Priority or secured credit. If a trustee or debtor in possession is unable to obtain unsecured credit because creditors are unwilling to extend credit in exchange for an administrative expense priority, a court may authorize a creditor after notice and a hearing to extend credit in exchange for special priority or a lien that does not interfere with existing liens. 11 USCA § 364(c).
- Priming secured credit. If a trustee or debtor in possession is otherwise unable to obtain credit, the court may authorize a creditor after notice and a hearing to extend credit in exchange for a senior lien on property already subject to a lien (in other words, the court will authorize a post-petition lien that primes a prepetition lien). The authorization of priming secured credit is a "last resort," uncommon, and only allowed if the prepetition lienholders whose liens will be displaced are adequately protected. 11 USCA § 364(d).
If you have questions about obtaining financing while a Chapter 11 bankruptcy case is pending, contact a lawyer at John Peter Lee, Ltd. in Las Vegas, Nevada, to schedule a consultation.
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