It takes a highly competent and experienced attorney to properly handle bankruptcy law cases. Even though you may reside in New Mexico, bankruptcy law is a federal law and not all New Mexico lawyers are as intimately familiar with bankruptcy law as New Mexico Financial and Family Law. Whether you are a creditor, or a business or individual seeking bankruptcy relief; improperly handled cases can cost you thousands of dollars and have significant impacts on your personal and financial future. When bankruptcy cases become complex due to involved personal financial assets and liabilities and/or business assets and liabilities you want and need the support of an experienced attorney who can and will assist you through the all of the processes and, when needed, call upon experts to support your case. If you are a creditor in a bankruptcy case you need a strong and knowledgeable advocate by your side from the moment you receive a creditor’s Notice of Bankruptcy.
Learn Some Quick Facts about Chapter 11 Bankruptcy in this Video:
The Formal Process of Court-Supervised Voluntary Financial Reorganization
Bankruptcy laws are very complex and errors or oversights made by creditors, individuals or businesses can and do have long term and significant financial effects. You want and need professionals on your side. New Mexico Financial and Family Law, specializing in bankruptcy, knows the fine details of all the issues and has a proven success record in achieving the best possible results. You want a bankruptcy lawyer who knows federal bankruptcy law, is your strongest advocate, and will represent all of your interests! The earlier you see us the better it can be for your case. Click here to contact New Mexico Financial and Family Law.
Chapter 11 – Business Reorganization Bankruptcy
Although the business’ restructuring can be accomplished either through an informal process of a consensual restructuring (known as a “workout”) between a business and its creditors or through the formal process of a court-supervised voluntary reorganization under chapter 11 of the bankruptcy code, in most instances a financially troubled company, if it intends to stay in business, should first attempt to negotiate a consensual restructuring of its obligations.
If you try the “workout” process or proceed into a formal Chapter 11 Bankruptcy, New Mexico Financial and Family Law highly recommends that you have highly competent legal and financial representation as you proceed through either process. Our bankruptcy lawyers can represent you and your company and they can also recommend appropriate and highly competent financial advisers to support you as you proceed through the process. As you read the top-level information below you will easily understand the reasoning behind this recommendation – it is not a process that you want to go through without a highly competent legal and financial team supporting you every step of the way.
The reasons for first attempting a “workout” include:
Avoidance of Stigma and Potentially Harmful Disclosure
A Much Simpler Process
Reduction of Expenses
Management Can Pay More Attention To The Real Business Of The Business
Reduces Delays in Implementing Business Decisions
If, however, a “workout” is not possible or practicable, you need to be aware that under Chapter 11, the debtor (company) usually remains in possession of its assets, and operates the business under the supervision of the court and for the benefit of creditors. The debtor in possession (company) is a fiduciary for the creditors; this means that the business activities, for the most part, must be focused on satisfying the creditor’s liens on the company. If the debtor’s management is ineffective or less than honest, a trustee may be appointed.
The good news for the company is that it is protected by an automatic stay that takes place upon the filing of the petition. No creditor can take any action against the debtor. The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor’s financial situation.
Large Businesses and Bankruptcy
The following information is primarily focused on large businesses – although some of the information is also applicable to small businesses.
A creditors’ committee is formed. The creditors’ committee can play a major role in chapter 11 cases. The United States trustee, a federal employee to be distinguished from a private case trustee or panel trustee, appoints the committee, which ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor. The committee may consult with the debtor in possession on the administration of the case, investigate the conduct of the debtor and the operation of the business, and participate in the formulation of a plan. A creditors’ committee may, with the court’s approval, hire an attorney or other professionals to assist in the performance of the committee’s duties. A creditors’ committee can be an important safeguard to the proper management of the business by the debtor in possession.
After the order for relief, the debtor has 120 days to formulate and file a Plan of Reorganization with the bankruptcy court. If the debtor fails to submit a plan during the 120 day period, or if creditors fail to consent to the debtor’s plan during the first 180 days, any of the creditors can submit a plan. The court is sometimes faced with conflicting plans.
A plan of reorganization must designate classes and interests under the plan and what these classes of creditors will receive under the plan. For example, secured creditors might be one class, unsecured trade creditors a second, and employees a third. The plan must be fair and equitable and must provide an adequate means for its own execution. Generally, all identified classes must accept the plan of reorganization by a majority vote in number of claims and at least 2/3 in dollar value, within each class. The bankruptcy court must approve the proposed reorganization plan after determining that it is in the best interests of the creditors.
Although each class of creditors must normally approve the reorganization plan, the bankruptcy court can still approve a plan over the objections of one or more classes of creditors. This power is called the “cram down” power.
(i.e., old debts that a debtor is no longer required by law to pay) offer business owners a chance to start over. Most, but not all, debts incurred prior to declaring bankruptcy are dischargeable, including business debts, back rent, and credit card bills. The discharge operates as a permanent order to the debtor’s creditors that prevents them from taking further legal action and communication with the debtor, including telephone calls, letters, and personal contacts. Ultimately, the availability of discharge depends on the chapter under which the bankruptcy proceedings are conducted (Chapter 11 in the case of most businesses), and whether the debtor is a person or organization. One rule which applies in all chapters is that a debtor guilty of misconduct during the course of the bankruptcy proceeding will be denied discharge.
Emerging from Chapter 11 Bankruptcy
Once the commitments formulated in the Plan of Reorganization have been satisfied, the company can emerge from Chapter 11 Bankruptcy, free from most debts, and start again to meet their goals and the obligations to their stockholders or owners.
Small Businesses and Bankruptcy
In some smaller cases the U.S. trustee may be unable to find creditors willing to serve on a creditors’ committee, or the committee may not be actively involved in the case. The bankruptcy code addresses this issue by treating a “small business case” somewhat differently than a regular bankruptcy case. A small business case is defined as a case with a “small business debtor.” Determination of whether a debtor is a “small business debtor” requires application of a two-part test. First, the debtor must be engaged in commercial or business activities (other than primarily owning or operating real property) with total non-contingent liquidated secured and unsecured debts of $2,000,000 or less. Second, the debtor’s case must be one in which the U.S. trustee has not appointed a creditors’ committee, or the court has determined the creditors’ committee is insufficiently active and representative to provide oversight of the debtor.
In a small business case, the debtor in possession must, among other things, attach the most recently prepared balance sheet, statement of operations, cash-flow statement and most recently filed tax return to the petition or provide a statement under oath explaining the absence of such documents and must attend court and the U.S. trustee meeting through senior management personnel and counsel. The small business debtor must make ongoing filings with the court concerning its profitability and projected cash receipts and disbursements, and must report whether it is in compliance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure and whether it has paid its taxes and filed its tax returns.
In contrast to other chapter 11 debtors, the small business debtor is subject to additional oversight by the U.S. trustee. Early in the case, the small business debtor must attend an “initial interview” with the U.S. trustee at which time the U.S. trustee will evaluate the debtor’s viability, inquire about the debtor’s business plan, and explain certain debtor obligations including the debtor’s responsibility to file various reports. The U.S. trustee will also monitor the activities of the small business debtor during the case to identify as promptly as possible whether the debtor will be unable to confirm a plan.
Because certain filing deadlines are different and extensions are more difficult to obtain, a case designated as a small business case normally proceeds more quickly than other Chapter 11 cases. For example, only the debtor may file a plan during the first 180 days of a small business case. This “exclusivity period” may be extended by the court, but only to 300 days, and only if the debtor demonstrates by a preponderance of the evidence that the court will confirm a plan within a reasonable period of time.
New Mexico Financial and Family Law is an Albuquerque, New Mexico based bankruptcy law firm which provides United States Bankruptcy legal services and advice throughout the state. The majority of its clients reside in the Albuquerque, New Mexico, area, i.e., Albuquerque, Bernalillo, Rio Rancho, Los Lunas and Belen. But the firm can also represent clients statewide in Hobbs, Las Cruces, Clovis, Farmington and other New Mexico cities. The firm represents clients who reside in New Mexico and also New Mexico residents residing in out-of-state jurisdictions. Bankruptcy law, as practiced by New Mexico Financial and Family Law, addresses all of a client’s concerns; legal, financial, and emotional. We attempt to settle bankruptcy cases through negotiation. If negotiation is unsuccessful then the trial skills of our attorneys at New Mexico Financial and Family Law are brought into play. Don Harris is a well-known and respected Albuquerque, New Mexico, lawyer. New Mexico Financial and Family Law not only provides the legal bankruptcy advice and guidance expected of experienced lawyers, we also works with other professionals such as financial advisors, CPAs and mental health counselors to provide the firm’s clients with many of the services needed to get through their financial and personal challenging times.
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