Within the Chapter 11 world, a common and powerful type of Chapter 11 reorganization case is the “real estate reorganization” Chapter 11 case. These types of cases are filed by real estate management companies, by individuals who own residential or commercial real estate, by holders of “single asset” real estate projects or properties, or by entities or persons who have ownership interests in real estate.
Tag Archives: Chapter 11
Business Bankruptcy And Chapter 11: Explaining The General Principles To Clients
A Chapter 11 petition can be filed for an individual or a business. In either situation, there are significant responsibilities that a debtor has in the progress of a case. When the petition is filed, an entity called a “debtor in possession” is created. The debtor is the “debtor in possession” unless a trustee is appointed in the case.
Technically, the debtor-in-possession is considered a separate legal entity. And unless a trustee is appointed, the debtor-in-possession has all of the rights, powers, and duties of a trustee. The debtor is his or her own trustee. This can be a tremendous advantage that Chapter 11 gives debtors over other types of bankruptcy cases (Chapter 7 and Chapter 13). A Chapter 11 debtor can avoid liens, set aside transfers, file adversary proceedings, and do many other things to expedite the reorganization process.
A debtor will need to use his or her “cash collateral” during the course of the case. What is cash collateral? It’s defined as cash, negotiable instruments, documents of title, deposit accounts, securities, or other cash equivalents. A Chapter 11 debtor also is required to open up a special “debtor-in-possession” bank account that will be used during the course of the case. When monthly operating reports are filed, the bank account statement is attached as part of the monthly operating report.
Local courts also have a lot of authority in deciding on the general guidelines for cases. Bankruptcy Rule 9029 permits local courts to set up rules as they deem necessary, provided they don’t conflict with the federal rules of bankruptcy procedure.
An attorney is required in a Chapter 11 case. Your attorney will help you file your monthly operating reports, comply with court orders, submit information as requested to the US Trustee, and perform a myriad of other duties in your case. But what is especially important is that your Chapter 11 attorney be an explainer. Being able to explain complicated concepts and procedures to someone who likely has never participated in a bankruptcy case before is a critical skill, and one that is often underappreciated.
At Phillips & Thomas LLC, we take pride in our ability to be great explainers and conveyers of information. Bankruptcy cases, and especially Chapter 11 business or personal cases, are participatory in nature. It’s a collaborative process. For a case to be successful, the debtor needs to participate and show interest in the case. And this comes with understanding fully what is going on. At Phillips & Thomas, we know how to explain in detail the following things:
1. Accounting for the property of the estate in monthly operating reports.
2. Examining proofs of claim filed in a case, and objecting as needed or necessary.
3. Providing information as required or requested to the US Trustee, such as insurance information or tax records.
4. Making a final report and accounting to the court regarding the estate and the completion of the Chapter 11 plan.
Being able to explain and convey these concepts is a critical skill for the Chapter 11 attorney to have. Far too often, clients overlook the need for having an attorney who can explain these and many other involved concepts. We make sure that clients understand all of the key duties and responsibilities that come with being in a Chapter 11 case.
Read More: Converting A Chapter 11 Bankruptcy Case in Kansas City
How Chapter 11 Bankruptcy Financing Rules Can Help Your Business In Kansas City
One of the most powerful features of a Chapter 11 bankruptcy is the ability of the “debtor in possession” to use the bankruptcy rules to access financing. Very often, distressed businesses need to find a way to inject capital into their business as part of a comprehensive reorganization plan.
Debtors are often faced with a situation where lenders are unwilling to extend credit, due to fears concerning the ability to repay. The Bankruptcy Code offers a way to make both lender and debtor satisfied. “Debtor in possession” financing (DIP financing) is one method that has worked for many troubled businesses and individuals. Essentially, the debtor will request permission of the Bankruptcy Court for approval of the DIP financing. The loan would normally be characterized as a priority security interest. Existing creditors or lienholders will want adequate assurances that their interests will be protected.
The bottom line is that the DIP financing procedures can enable a debtor to obtain the kind of financing that it would not normally be able to obtain outside of bankruptcy. Because the DIP loan is not subject to a legal challenge, a lender is going to have a higher level of comfort participating in the transaction. Frequently in Chapter 11 cases there are situations where assets are being sold. The Chapter 11 protections mean frequently that assets can be bought or sold under more favorable conditions than if there were no bankruptcy, and the ability to get DIP financing can also help expedite the process.
The end result is a greater flexibility given to the debtor, and a greater ability for the debtor to plan a Chapter 11 plan of reorganization that meets the specific needs of the case.
You must be logged in to post a comment.