Chapter 11 Bankruptcy Attorney in Ventura, California

It’s not uncommon for business owners in California to be struggling with debt. Thankfully, with the right kind of guidance, you may be able to find a path forward with bankruptcy.

If you're dealing with substantial debt in Ventura or elsewhere in California, contact us at Kenneth H.J. Henjum Law Office. We will explain the Chapter 11 process and requirements to you and then help you navigate the system for you and/or your business. You deserve to put your debts behind you. 

Our office serves clients throughout Ventura County, including Thousand Oaks, Simi Valley, Camarillo, and Oxnard. We also help clients in Carpinteria, Santa Barbara, Lompoc, Santa Maria, and Paso Robles. Reach out immediately if debts are overwhelming you or your business. 

What Is Chapter 11 Bankruptcy?

The federal bankruptcy code is organized into chapters that are tailored to specific circumstances and specific methods of addressing debt obligations. The most popular chapters for individuals and families are Chapter 13, dubbed “The wage-earner’s plan,” and Chapter 7, the liquidation plan. Chapter 7 is generally the most used because it can be over in a few months’ time, while Chapter 13, which focuses on reorganizing debts, can take three to five years. 

For businesses, Chapter 11 is the most utilized. Except for sole proprietorships, businesses cannot use Chapter 13. Chapter 7 will indeed result in the liquidation of the business’s assets to pay creditors, but it will not relieve the owners of their debt obligations, as it would in a personal filing.

Therefore, Chapter 11 is the preferred route because it can give businesses a wide horizon to pay off debts and continue operating.

Chapter 11 Specifics

Chapter 11 of the bankruptcy code is similar to Chapter 13 in that it is a reorganization plan. There are some major differences, however. First, in Chapter 11, unlike Chapter 13, there is no bankruptcy trustee assigned to oversee your reorganization efforts. Instead, you create the reorganization plan for approval by credits and the bankruptcy court as a “debtor in possession"— which means you continue to operate your business and/or manage all your financial affairs on your own.  

Also, Chapter 11 is a more fluid option. As the debtor in possession, you have four months to propose a reorganization plan. This “exclusivity period” can potentially be extended up to 18 months by petitioning the court.  

As with a Chapter 13 filing, any person or entity filing under Chapter 11 must get their reorganization plan approved by creditors. If enough creditors object, then the plan must be revised, or in a worst-case scenario, the creditors can force a Chapter 7 liquidation filing. In any case, the reorganization plan must provide at least as much debt repayment as the creditors would get under a Chapter 7 filing. 

Another aspect similar to Chapter 13 is that filing under Chapter 11 results in what is known as an “automatic stay.” This prevents creditors and bill collectors from contacting you or attempting to collect on what is owed them. However, if the debts are secured obligations, such as for real property like buildings, land, or vehicles, then the creditors can seek relief from the stay.  

If you're behind in secured obligations, you must work out a loan modification, make good on your obligations, or offer what is known as “substitute collateral.” Secured debts can be challenging, so the help of an experienced bankruptcy attorney is essential. 

Debtor-Creditor Disputes and Agreements

As noted above, creditors must agree to the proposed reorganization plan. The bankruptcy court must also agree to what is proposed even if creditors do approve the proposal. The court will consider several factors, including: 

• FEASIBILITY: Is the plan as proposed likely to succeed? Will revenues be sufficient to pay what is being proposed? 

• GOOD FAITH: Is everything being proposed transparent and being advanced in earnest? 

• BEST INTERESTS OF CREDITORS: Will the plan guarantee creditors at least as much as they would receive under a Chapter 7 liquidation? 

• FAIR AND EQUITABLE: Secured creditors must be paid at least the value of their collateral (building, land, etc.) 

Subchapter V Filings

Congress in 2019 created what is known as a Chapter 11 Subchapter V filing for small businesses with less than $7.5 million in external obligations. This was done to streamline the process and make it more affordable. Under Subchapter V, for instance: 

• Creditors are not allowed to submit a reorganization plan to compete with the business or individual plan. 

• There is no appointment of an unsecured creditors’ committee, which has the power to delay or prevent reorganization plan adoption. 

• No disclosure statement has to be filed to enter into Chapter 11. 

• A reorganization plan is easier to confirm.

Every case is different, so be sure to reach out to skilled legal counsel to strategize a path forward.