Los Angeles Chapter 11 Bankruptcy Attorney

​Los Angeles Area businesses that are overburdened by financial obligations can face difficult choices. Companies may be forced to lay off employees, refrain from paying vendors, or default under mortgage loans or other bank financing. Chapter 11 can help restructure debt and put your business on the path to profitability. Individuals can also use Chapter 11 to propose affordable repayment plans for those who don’t meet the Chapter 13 eligibility requirements.

Chapter 11 of the bankruptcy code is a “reorganization” and is primarily for businesses (small or large) such as corporations and partnerships, and for individuals with large debts and assets who do not meet the debt limitations of Chapter 13.

chapter 11 paperwork
Chapter 11 offers greater flexibility and options than other chapters and, in the hands of an experienced bankruptcy reorganization attorney, can be extremely useful even in lower debt cases.

Chapter 11 is very useful in real estate cases where you are trying to find ways to catch up on past due payments, or buy some time for selling a piece of property that has equity, or for dealing with delinquent taxes, or any scenario where you need time to catch up on payments, and keep your business running.

If you are an individual or a small business owner (not a corporation or partnership), make sure to also check out information for bankruptcy Chapter 7 and Chapter 13. Also, see how a Los Angeles Area bankruptcy lawyer can help you better understand the difference between your personal liabilities and that of your business/corporation. Contact my office today to speak with an attorney.

Chapter 11 benefits include, but are not limited to:

  • Protect and keep all your assets
  • Stop Foreclosure Sales and catch up on past due mortgage payments over time
  • Remove Liens, such as under secured mortgages, on your property
  • Avoid burdensome contracts and leases
  • Eliminate tax penalties where the underlying tax debt is not dischargeable.

Chapter 11 Bankruptcy Explained by Lawyer Assisting Those in Los Angeles

How Does Chapter 11 Work?

 

business debt with calculatorHaving a bankruptcy lawyer explain Chapter 11 so that it is understandable is a bit like having a nuclear physicist try to explain how to split an atom. It’s not so easy to be complete.

Chapter 11 is unique in that the person or entity filing Chapter 11 is a “debtor-in-possession”, meaning that they remain in possession of all assets and operations of any ongoing business.

In other words, the Debtor itself (or himself or herself) is the Trustee for the Chapter 11 bankruptcy estate unless and until the court appoints a separate Trustee.

While this is a great advantage, it does not come without its costs and there are many fiduciary responsibilities because the debtor-in-possession must act in the best interests of the creditors of the bankruptcy estate–not necessarily in the best interest of the owners or officers.

The ultimate purpose of a Chapter 11 case is to get a Plan of Reorganization (repayment) confirmed by the court. The Chapter 11 Plan is a contract with creditors as to how they will be repaid, and from what source.

In order for the plan to be approved, the creditors must vote in favor of the Plan in certain numbers, or if they do not vote in sufficient numbers for the Plan, they may sometimes be forced to accept the Plan if other requirements are met, although that may also result in the debtor having to give up assets. Ultimately, the key to a successful Chapter 11 plan is in reaching agreements with the creditor through negotiation.

There are many ways to formulate a Plan, subject to the requirements and limitations of the Bankruptcy Code, and the more skilled bankruptcy attorneys and lawyers will explore all avenues to improve your business and financial position.

Bankruptcy attorney Mark Markus has over 30 years’ experience getting Chapter 11 plans approved in the Greater Los Angeles Area. He is one of a relatively small number of Certified Specialists in Bankruptcy Law by the State Bar of California Board of Legal Specialization.

Contact us now to learn how Chapter 11 could help with your debt situation.

Who Can File Chapter 11?

Chapter 11 was originally designed for Business Corporations and Partnerships (including LLCs and LLPs), but individuals can also file Chapter 11. The trend has been to make Chapter 11 more accommodating to individuals. In fact, SubChapter V was partially created with individual small business owners in mind.

Individuals would file a Chapter 11 if they do not meet the debt limitations of Chapter 13 or if they need more flexibility with repayment terms than is offered in Chapter 13.

Businesses file when they want to continue operating their business but need some breathing room from creditors and a chance to propose a repayment plan.

bankruptcy petition

Small Business Subchapter V of Chapter 11 Explained By Los Angeles Lawyer

Chapter 11 Subchapter V was recently added to The Bankruptcy Code in an effort to make Chapter 11 a bit easier and more “friendly” to those small businesses that qualify. This has been a great help to my Los Angeles area clients.

Subchapter V is a more streamlined version of Chapter 11 in that it eliminates the requirement of a lengthy securities Disclosure Statement and it does not require consent (votes) of the creditors in order to approve a repayment Plan (assuming other Bankruptcy Code requirements are met). This is supposed to reduce the costs somewhat and enable the debtor to retain their property (or interest in their business) despite any objections from creditors.

small business receipts

However, the Subchapter V has an accelerated time frame for filing a Plan of Reorganization and other documents. And an appointed Trustee, who has limited duties in the case, is mandatory, so there are additional fees for them, although often not too high.

To be able to use Subchapter V, the debtor must be engaged in commercial or business activities and have total debts of no more than $2,725,625 (excluding debts owed to Insiders) and at least 50% of those debts must be related to the commercial or business activities. This debt limit is increasing to $7.5 million effective for cases filed after June 21, 2022 and that will be in effect for two (2) years, until June 21, 2024.  Update (June 26, 2024):  Congress failed to renew the increased debt limits due to Senator Rand Paul blocking a vote on a proposed continuance.  

mortgage documents

For individual business owners in the Greater Los Angeles Area, one advantage of SubChapter V over a standard Chapter 11 is the ability to modify rights of mortgage holders on a principal residence.

This can enable one to strip a junior lien from the property if the value of the property is less than amount owed to senior lienholders. A bankruptcy lawyer can guide you on how this new section can assist your business. Contact me now to schedule an appointment to learn your options.

How a Bankruptcy Attorney Can Help Los Angeles Businesses and Residents File Chapter 11

Bankruptcy cases are complicated and filled with landmines and traps for the unwary.

I am Mark J. Markus and I am an attorney that has advised and represented clients in Chapter 11 bankruptcy cases since 1991 in the Greater Los Angeles Area.  I am a certified specialist in bankruptcy law by the State Bar of California Board of Legal Specialization.

I understand how difficult the decision is to file bankruptcy. My practice is structured to minimize surprises and problems in bankruptcy cases that often arise with other bankruptcy attorneys.

attorney shaking man's hand

Open communication is a hallmark of my representation and I promptly respond to client questions.  All work is done by me, a bankruptcy lawyer, in my Burbank, Los Angeles office. No paralegals or assistants.

Bankruptcy cases are only filed by our office after weighing all alternatives and analysis of the pros and cons of filing.

Our firm serves many cities and counties in California, including counties of Los Angeles, Orange, Santa Barbara, Riverside, San Bernardino, Ventura, San Luis Obispo, and cities including Burbank, Glendale, Sylmar, Panorama City, Simi Valley, San Fernando Valley, Irvine, Santa Clarita, Oxnard, Huntington Beach, Ontario, Rancho Cucamonga, Corona, Torrance, Agoura, Long Beach, San Fernando, Van Nuys, Sherman Oaks, North Hollywood, Anaheim, Hollywood, Riverside, San Bernardino, Lancaster, Palmdale, Pasadena, and many more.

FREQUENTLY ASKED QUESTIONS (FAQ’S) ABOUT CHAPTER 11

What Happens in a Chapter 11 Bankruptcy Case?

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A Chapter 11 reorganization case is commenced, like any other bankruptcy case, by filing a petition and schedules with the court. There are numerous compliance requirements throughout the case, with a large amount due in the first 7 days. This compliance is given to the United States Trustee’s Office and includes things like proof of insurance, proof of opening Chapter 11 bank accounts, recordation of the bankruptcy petition (if real property is involved), tax returns, financial statements, and so forth.

A Status Conference with the Judge is usually set for between 60 and 90 days after the case is filed, depending on whether it is a SubChapter V case or regular Chapter 11.

Following (or prior) to that, a Disclosure Statement showing detailed information on the debtor and its finances and operations is filed, along with a Plan of Reorganization. In SubChapter V cases, there is no Disclosure Statement requirement.

Upon approval of the Disclosure Statement as containing adequate information, the Plan gets mailed out to creditors to vote.

A certain number of classes must vote in favor of the plan for it to be approved. Specifics of the voting requirements are beyond the scope of a FAQ section. Contact us to discuss how voting would work in your case.

In most cases there are negotiations with creditors to obtain consent to the Plan and many times there is litigation on various issues which arise.

In Chapter 11, the debtor remains “in possession,” has the powers and duties of a trustee. It, he, or she may continue to operate its business, and may, with court approval, borrow new money.

Chapter 11 is very involved and there are many details and complexities. To learn how it would work in your situation, contact us now for an appointment.

Does Chapter 11 Bankruptcy Wipe Out Debt?

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Chapter 11, like Chapter 13, can wipe out anywhere from 0% to 100% of unsecured debt, depending on a number of factors.   These factors include the value of assets, the disposable income of the business, what non-dischargeable debts must be paid (such as certain taxes, secured debts, etc.).

Another stumbling block to doing less than 100% plan is the so-called “absolute priority rule” which does not allow the debtor to retain any interest in the property of the debtor (in a corporate setting, this means the shares of stock owned) if any senior class of claims is paid less than 100%. The workaround for this is that the owner(s) must contribute adequate “new value” to the plan. How much is necessary for that is very case and judge-specific.

One of the benefits of the new SubChapter V Chapter 11 is the elimination of the absolute priority rule.  

Determining what debts can be eliminated in Chapter 11 is very complex. To learn more about your specific circumstances, contact us today to schedule an appointment.

What is the Difference Between Chapter 11 vs. 13 Bankruptcy

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There are many differences between Chapter 11 and Chapter 13. Some key differences are summarized below. Essentially, Chapter 11 is more involved and more expensive. It does have somewhat more flexibility in how you can treat creditors, but it was originally designed for corporations. Chapter 13 is basically a mini-Chapter 11 for individuals. Here are some of the main differences:

Chapter 13

  • Must have less than $465,275 in unsecured debt and $1,395,875 in secured debts to file
  • Only individuals with regular income can file. No corporations or partnerships.
  • Creditors do not get to vote on the repayment Plan. It just has to comply with Bankruptcy Code requirements.
  • Much less expensive to file (lower attorney and filing fees)
  • Much less compliance and reporting requirements than Chapter 11
  • Plan term limited to a maximum of 60 months and minimum of 36 months.

Chapter 11

  • Anyone can file: Individuals, Corporations, Partnerships.
  • Must get enough creditor votes in various classes to confirm repayment Plan. (except in SubChapter V cases where voting requirements are suspended if other requirements are met).
  • Can stretch out payments to creditors over longer period of time than Chapter 13.
  • Ability to negotiate with creditors to obtain a consensual plan.
  • More expensive to file.

Significantly more administrative burdens during case (ongoing reporting and compliance).