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Can a Business Survive Chapter 11?

Chapter 11 bankruptcy (“reorganization bankruptcy”), in most instances, allows a business to remain in possession of its assets, continue operations, and in some instances, borrow new money. Affected creditors can vote on the company’s reorganization plan, and the court may confirm it if it satisfies the legal requirements and receives enough votes. Not all businesses survive bankruptcy, but the goal of Chapter 11 is to allow a company to keep its doors open. Under Chapter 11, creditors have claims against the business which may entitle them to repayment of some kind. Creditors, debtors, and the court all have a role to play in the case’s outcome.

Chapter 11 is a complex and time-consuming process, and businesses don’t always survive it.  The process can be even more precarious for creditors who are owed a debt. When debtors file for bankruptcy, creditors whose rights are affected might not receive payment in an amount they believe is deserved. If you are owed a debt by a business seeking bankruptcy protection under Chapter 11, it is crucial to hire an experienced creditors’ rights attorney to help you navigate the legal process.

How Reorganization Impacts Creditors

In a Chapter 11 bankruptcy proceeding, creditors have specific rights, including the right to monitor the debtor’s financial situation and, in certain instances, may submit their own proposed reorganization plan. Debtors typically have the sole right to suggest their own restructuring plan for the first four months or longer, in some cases. Unless extended, once this exclusivity period expires, creditors can propose alternative plans. Creditors also have the right to file a motion to dismiss the bankruptcy case or ask the court to convert it to Chapter 7.

In most cases, before the plan is approved and becomes the new contract, it must be accepted by the business’s creditors. If a creditor objects to the proposed plan, the bankruptcy court must consider several factors, including the creditor’s best interests, before ruling on any objections. The “best interest test” shows whether the creditor would be paid at least as much in a Chapter 11 reorganization as in a Chapter 7 bankruptcy.

Some of the other factors that the court will consider before approving a plan include:

  • Whether the debtor’s plan is viable and the company can make enough money to keep the business going while repaying creditors
  • Whether the proposal was made in good faith
  • Whether the plan is fair and equitable to creditors 

If a business files for Chapter 11 bankruptcy and owes you money, you have the right to provide input, object to a debtor’s restructuring plan, or provide an alternate reorganization proposal. A skilled creditors’ rights attorney could help protect and enforce your rights and help you recover what you’re owed.

Contact a South Carolina Creditors’ Rights Lawyer

At Crawford & von Keller, LLC, our creditors’ rights attorneys have extensive experience helping creditors protect their rights when a debtor files for relief under Chapter 11 of the Bankruptcy Code, in South Carolina. We will be ready to discuss the specifics of your situation when you call us or contact us online and schedule a confidential case review.

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