Corporate Bankruptcy FAQs
Get answers to some of the most common questions about filing a corporate bankruptcy in Florida.
Frequently Asked Questions
What you need to know about filing a Corporate Bankruptcy.
When a company is facing financial distress, bankruptcy might be the best option. To help determine if corporate bankruptcy is right for you, contact us for a Free case evaluation!
When should a business voluntarily file Chapter 7?
Chapter 7 bankruptcy of a business involves its liquidation and should be viewed as a last resort when all other reasonable and realistic alternatives to chapter 7 have been explored and exhausted. Alternatives to chapter 7 for a business may include obtaining new sources of debt financing or capital investment, sale of assets or sale of the business in whole or in part, an out-of-court workout with creditors, or a restructuring under chapter 11. If none of these alternatives are viable, management or owners of a business may want to file a chapter 7 liquidation for a financially troubled business that is unable to pay its debts or has debts greater than assets (i.e., insolvent). If a business is insolvent or in the zone of insolvency, there is a developing body of case law that holds that management no longer has a duty to the owners (i.e., shareholders or other equity holders) of the business, but rather to its creditors. By filing a chapter 7 bankruptcy, management can ensure that creditors' claims are dealt with in a single unified proceeding and that the debtor's assets are not stripped apart by different creditors pursuing their individual legal remedies, such as by judgment enforcement. The decision whether a chapter 7 is appropriate for a particular business must be made based on the facts applicable to that business.
What happens when a business files Chapter 7?
The filing of bankruptcy creates an automatic stay which is comprehensive and bars virtually all creditor collection activity, including commencement and continuation of lawsuits and enforcement of judgments against the debtor's assets. When a business files chapter 7 bankruptcy an interim trustee is appointed by the U.S. Trustee's office to marshal and liquidate the debtor's assets and distribute them to creditors. The interim trustee becomes the permanent trustee unless a different trustee is elected by creditors. The trustee has the ability to collect and pursue the receivables and claims (including legal claims and causes of action) of the debtor. In order to promote equality of treatment of similarly situated creditors, the Bankruptcy Code gives the trustee the ability to recover certain pre-bankruptcy transfers of the debtor as preferential or fraudulent transfers.
What happens when a business files Chapter 11?
Unlike chapter 7, when a business files for chapter 11, a trustee will usually not be appointed and the debtor will remain a "debtor in possession" (DIP) with the same management in place unless the bankruptcy court orders a trustee appointed for "cause" (including fraud, dishonesty, incompetence or gross mismanagement of the affairs of the debtor by its current management), or if the court determines that appointment of a trustee is in the best interest of creditors.
What is the U.S. Trustee and what is its role?
A branch of the Department of Justice tasked with overseeing the administration of bankruptcy cases. The U.S. Trustee plays an oversight role, particularly in chapter 11 cases. It does this primarily through reviewing operating reports the debtor is required to file and tracking the progress of the case against benchmarks set in the early stage of the case.
What is the goal of Chapter 11?
The main goal of a chapter 11 bankruptcy case is for a plan of reorganization regarding the debtor to be approved by its creditors. The Bankruptcy Code gives the debtor the exclusive right to file a plan for the first 120 days of the case (which can be extended not more than 20 months from the date the case was filed). A creditors committee, or even individual creditors, can file a plan of reorganization once the debtor's exclusive filing period has lapsed (or been lifted by the Court). Debtors in chapter 11 must be represented by attorneys. Creditors committees typically also hire attorneys.
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