How Long Does A Chapter 11 Bankruptcy Case Take To Get Resolved?
A debtor’s Chapter 11 plan can take a year or two to get confirmed and payments start to be made to the creditors. When the initial distributions called for under the confirmed plan have been made to the creditors, and confirmation granted by the bankruptcy court, the case is closed. Unfortunately, in my experience, most Chapter 11 bankruptcies are unsuccessful. Few debtors make it to confirmation and fewer yet continue to operate one year after confirmation.
There is an alternative, something I have been doing for decades: the Assignment for the Benefit of Creditors. When dealing with businesses having financial problems in a bankruptcy, what payments creditors are going to get is based upon the liquidation value of the assets and whatever cash flow they have going forward. I have found that for most of my clients, it is less intrusive and more expeditious to go about a reorganization in a procedure allowed by Massachusetts called the Assignment for the Benefit of Creditors. Under this procedure, the Assignee who is appointed is under an affirmative obligation to liquidate the assets assigned in a commercially reasonable matter. This can be by public auction or private sale. If by private sale, an appraisal of the assets by a local well recognized auctioneer determines the purchase price for the buyback.
In my opinion, in general, an Assignment for the Benefit of Creditors is often a better way to liquidate a corporation or LLC (individuals don’t do Assignments for the Benefit of Creditors because they want to obtain a discharge; corporations or LLCs in Chapter 7 bankruptcy just have their assets liquidated, no discharge is issued) than a Chapter 7 bankruptcy. The Assignment for the Benefit of Creditors is less hands on; you sign some papers, close up the business and it gets auctioned off. There are no 341 meetings nor do you have a Chapter 7 Trustee looking into the debtor’s principal’s financial affairs (which is often a certainty when a closely held corporation or LLC files for Chapter 7 bankruptcy).
Then there is the potential for a buyback in certain situations. The Assignee can sell the assets to a new purchaser or to the same people, if they want to keep operating. The purchase price will be based on the value of the assets assigned and the amount of equity in said assets. There may be certain successor liability problems but most times, within a few days, the business is up and running again without missing a beat. If there is no equity in the assets, we typically create a dividend, so the creditors would still receive what they would have received in a Chapter 11. It is a lot quicker and, if the business is going to succeed, it is simpler when they a court or the Trustee’s Office is not involved.
When Is A Chapter 11 Bankruptcy Viable?
I look at Chapter 11 as the last resort; only to be utilized in an emergency, such as a threatened asset seizure by a secured creditor, a real estate foreclosure, or the seizure of assets by the taxing authorities. However, none of those things occur without warning and advance notice. If it gets to that point, Chapter 11 is the only way to stop the threat with the automatic stay. If you are not facing that predicament, I feel that an Assignment for Benefit of Creditors makes more sense.
How Has COVID-19 Impacted Bankruptcy Filings In Massachusetts?
The Chapter 13 Trustee is not really pressing it when debtors are getting behind right now on their Chapter 13 plan payments. During the COVID-19 pandemic, everything is being done by phone. If you have a 341 meeting, we get a number to call. My clients can call in from home or come to my office to participate in the meeting. As we are no longer going into Boston for the 341 meeting, I am the person who verifies that the debtors are who they say they are. I send all this information directly to the Trustee, who then swears them in during the meeting.
The same thing is happening with hearings in court. All the hearings are handled by phone. It makes life a lot easier. The hearings are all still going on and so far, there hasn’t been much change in the field of bankruptcy. From my perspective, this would be a great time to file a bankruptcy because of the extent to which people’s incomes have been adversely impacted. For people who have incomes that would put them in a Chapter 13, bankruptcy is something to consider now because we go by the last six months’ income, and you may no longer be a candidate for Chapter 13 given the tough times of Covid-19.
For the time being, you must continue making your plan payments, but the Chapter 13 Trustee understands that times are tough and is acting accordingly. I have seen a pick-up in my business, however, and I don’t see people necessarily being able to get themselves out in the current Covid-19 situation.
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