Category Archives: Chapter 11

What is Michigan chapter 11, and who may qualify?

Chapter 11 is frequently known as the reorganization chapter of the bankruptcy code because it allows a debtor to reorganize financial obligations while retaining assets, generally through the sale of certain assets to pay down debt and refinance existing debts. Chapter 11 is available to both individuals and businesses.

The following is a brief description of the relief afforded to individuals and businesses through Chapter 11, for more information please call Firebaugh & Andrews for a few evaluation at 734-722-2999

Chapter 11 Overview

Filing a Chapter 11 petition grants a debtor what is known as an automatic stay from the enforcement actions of creditors. This precludes creditors from continuing collection efforts, from bringing a lawsuit, or from filing liens against property or foreclosing on property.

In Chapter 11, a debtor generally remains in control of their estate. A trustee may be appointed for cause (i.e., fraud, dishonesty, incompetence or gross mismanagement) or if such appointment is in the best interest of creditors; however, this relief is relatively rare. A Chapter 11 debtor-in-possession generally has the same rights as a trustee would have if appointed, thus any reference to rights or authority of a debtor would apply to a trustee, if appointed, as well.

Exclusive Time Periods

A Chapter 11 debtor is granted the exclusive right to file a plan of reorganization for a period of 120 days and to solicit a plan of reorganization for a period of 180 days. A debtor can seek an extension of these “exclusive periods” for cause. Otherwise, once an exclusive period lapses, any creditor or party in interest can file a plan of reorganization for the debtor.

Similarly, if a creditor or party in interest can show that a debtor is mismanaging the estate, not negotiating in good faith with creditors or using the exclusive period as leverage in negotiation with creditors, they can seek to terminate exclusivity to allow non-debtors to file a competing plan. Competing plans are rare; however, the threat of a competing plan is often sufficient to keep negotiations between a debtor and its creditors active.

Committee of Unsecured Creditors

Another tool available to balance creditors’ powers of negotiation is an official committee of unsecured creditors. The purpose is similar to that of a class action lawsuit – while each individual creditor may not have a large enough claim to justify retaining counsel, aggregate creditors’ claims can be quite large and their collective voice could benefit from legal representation. The creditors’ committee is made up of three or more volunteering unsecured creditors selected by the United States Trustee. The creditors’ committee can retain legal counsel and financial advisors to assist in the case, with the cost of such professionals carried by the debtor.

A creditors’ committee is not formed in every case and is usually limited to large, complex or highly contested Chapter 11 cases.

The Reorganization Plan

A Chapter 11 plan of reorganization provides debtors with important tools for rearranging financial affairs. For example, a plan may allow a debtor to reject certain contracts or leases with a cap on damages. This is helpful where a debtor has signed an expensive, long-term contract that is no longer beneficial.

A debtor may also refinance existing loans including increasing the time in which it must be repaid (i.e., stretching a two-year loan to five years), decreasing the interest rate if interest rates have declined since the loan was entered into, or changing/removing other arduous terms. Through Chapter 11, as with other bankruptcy chapters, a debtor can also sell an asset free and clear of all liens either through a plan or through what is a called a 363 sale. The ability to sell an asset free and clear of liens can garner a greater sale price as purchasers are assured that the property is unencumbered and the purchaser is subject to less liability.

Regardless of who files a plan of reorganization, certain creditors are entitled to vote to approve or disapprove a plan. Only those creditors that are determined to be partially impaired (e.g., reduced payments or payments over time) are entitled to vote on a plan. Creditors that are unimpaired are deemed to accept the plan and creditors that are fully impaired (i.e., will not recover) are deemed to reject the plan. However, even if they are not allowed to vote on a plan, a creditor still has the right to object to its treatment under the plan. In order for a plan to be accepted, two-thirds of creditors in number and fifty percent of creditors in dollars must vote in favor of the plan.

A Chapter 11 debtor can cramdown a plan over the negative vote of creditors in certain circumstances. Even if creditors vote to accept a plan, the bankruptcy court will review the plan and ensure that it meets statutory requirements before the plan can be confirmed. If a debtor is unable to get a plan of reorganization confirmed, the case may be converted to a Chapter 7 filing or dismissed. After a plan is confirmed, the debtor’s bankruptcy is essentially over. However, the bankruptcy court generally retains jurisdiction over the case at least until the last plan payment is made.

Chapter 11 for Individuals

Given the complexity and cost of Chapter 11, it is most often used by businesses. On the other hand, Chapter 11 may be the only option available to an individual debtor with income greater than that allowed by the Chapter 7 means test, and secured debt in excess of that allowed by Chapter 13. This is often the case where an individual owns large amounts of real property, but does not have sufficient liquidity to pay his or her debts as they come due.

The major benefit of Chapter 11 for individuals is the ability to keep assets beyond just the statutory exemptions available under Chapter 7 and Chapter 13. Given that Chapter 11 individual cases are relatively infrequent and the language of the chapter is better applied to corporations, the law applied to Chapter 11 consumer cases has been largely unsettled. If you are considering an individual Chapter 11 you would be best served to give us a call for a free consultation at 734-722-2999 Firebaugh & Andrews

Michigan Bankruptcy Facts

Michigan residents who find themselves overwhelmed with debt can seek relief under the federal bankruptcy laws. There are two common forms of bankruptcy for individuals: Under Chapter 7, the courts sell off all non-exempt assets to pay off as much of your debt as possible and under Chapter 13, you keep all or most of your assets but must create a court-approved plan to pay off your debts over time. Although bankruptcy is handled in the federal courts, some of the details vary based on your being a Michigan resident.

District Bankruptcy Courts in Michigan

Michigan’s bankruptcy court is divided into the Eastern District, with the main court in Detroit, and the Western District, with the main court in Grand Rapids. Each district also has divisional offices where you may file so long as you file in the district where you live.

Can I File Chapter 7 Bankruptcy?

You may file Chapter 7 bankruptcy if your average monthly income for the six months before you file is less than Michigan’s median income for a family of your size. For example, if you are married with two children, you must earn less than Michigan’s median income for a family of four, which is $6,037 monthly for 2012. If you make more than this, you must pass a stringent means test to qualify for Chapter 7.

How Long Is a Chapter 13 Repayment Plan?

The amount of time you must spend paying your creditors also depends on your income as compared to Michigan’s median income. For example, if you make less than the median income, your repayment plan will usually be up to three years. If your income matches or exceeds the state median, your plan will be five years, unless you’re able to pay off all unsecured debt in less time.

Can I Keep My House and Car?

Both federal and state laws allow you to exclude certain personal property from your bankruptcy case. Michigan lets you choose whether to use the state or the federal exemptions, but you must pick one or the other, you cannot mix and match from both lists.

The federal and state lists include similar exemptions, although specific items and values vary. Some of these exemptions include:

  • Personal items such as family pictures, clothing, jewelry, and household goods
  • Public benefits
  • Retirement accounts
  • Tools of your trade

Exemption values for your home and car also differ. Michigan adjusts the dollar value of exemptions every three years. As of 2011, the state allows a homestead exemption up to $35,300 of equity or $52,925 for people aged 65 or older or disabled. The federal exemption is $21,625 or $43,250 for married couples filing jointly. The state allows you to keep up to $3,250 of equity in one vehicle, while the federal vehicle exemption is $3,450.

If you have moved to Michigan within two years prior to filing for bankruptcy, you must use the exemptions from your previous home state.

Call us today to get your free consultation 734-722-2999

Corporate Bankruptcies: The Effects on the Investors

The investors get placed between the rock and the hard place when the company he or she has invested has declared bankrupted. But if the company has filed the bankruptcy under the Chapter 11, there’s a fair chance to get paid off.
According to Securities and Exchange Commission, while the company has file under Chapter 11 the bondholders stop receiving interest and principal payments while the stockholders, on the other hand, stop receiving dividends. “If you are a bondholder, you may receive new stock in exchange for your bonds, new bonds or a combination of stock and bonds. If you are a stockholder, the trustee may ask you to send back your stock in exchange for shares in the reorganized company.” These new shares may be fewer in number and probably will worth less than it was before. In other words the reorganization plan “…spells out your rights as an investor and what you can expect to receive, if anything, from the company.”

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Corporate Bankruptcies: The Relationship between Chaper 7 & Chapter 11 Bankruptcy

There is no direct relationship between Chapter 7 and Chapter 11. But when it comes to corporate bankruptcies there can set a relationship between the two bipolar Chapters.
The U.S. Security and Exchange Commission (SEC) define Chapter 7 as taking the business out of its all operations and turning it into an asset. The asset is sale off through an appointed committee and the one, investors or creditors, who take the least risks, are paid first. Chapter 11, while on the contrary, keeps the business in the running state and allowing it to pay the creditors by re-planning or rephrasing its financial acts.

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Facing Bankruptcy While Living in Michigan

Michigan residents who find themselves overwhelmed with debt can seek relief under the federal bankruptcy laws. There are two common forms of bankruptcy for individuals: Under Chapter 7, the courts sell off all non-exempt assets to pay off as much of your debt as possible and under Chapter 13, you keep all or most of your assets but must create a court-approved plan to pay off your debts over time. Although bankruptcy is handled in the federal courts, some of the details vary based on your being a Michigan resident.
District Bankruptcy Courts in Michigan

Michigan’s bankruptcy court is divided into the Eastern District, with the main court in Detroit, and the Western District, with the main court in Grand Rapids. Each district also has divisional offices where you may file so long as you file in the district where you live.
Can I File Chapter 7 Bankruptcy?

You may file Chapter 7 bankruptcy if your average monthly income for the six months before you file is less than Michigan’s median income for a family of your size. For example, if you are married with two children, you must earn less than Michigan’s median income for a family of four, which is $6,037 monthly for 2012. If you make more than this, you must pass a stringent means test to qualify for Chapter 7.
How Long Is a Chapter 13 Repayment Plan

The amount of time you must spend paying your creditors also depends on your income as compared to Michigan’s median income. For example, if you make less than the median income, your repayment plan will usually be up to three years. If your income matches or exceeds the state median, your plan will be five years, unless you’re able to pay off all unsecured debt in less time.