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The bankruptcy code provides numerous benefits to debtors who seek reorganization under Chapter 11. Below is a partial list of some of the advantages of chapter 11.
Automatic stay: When filing a petition for Chapter 11 bankruptcy, the debtor benefits from an automatic injunction of all lawsuits, foreclosures, repossessions, bank levies, wage garnishments and other collection activities. The automatic stay is immensely helpful for debtors who are facing aggressive collection action by creditors, and is the first step in reorganization.
Avoidance and recovery of certain involuntary transfers: Once a debtor is in bankruptcy protection, the debtor can avoid and recover certain bank levies, wage garnishments, lien notices, even repossessions of vehicles or equipment that occurred prior to the filing of the bankruptcy.
Preservation of a going concern: Debtors that are operating a business can continue business operation in a chapter 11. This means that the business name, goodwill, and customer base are not lost.
Temporary deferral of obligations incurred pre-petition: While in a chapter 11 reorganization, debtors may be able to temporarily defer making certain rent or installment debts.
Adjustment of interest rates: One of the advantages of chapter 11 is that debtors can use the reorganization process to adjust certain interest rates. For example, excessively high interest rates on loans secured by commercial equipment, vehicle, or certain real estate can be lowered.
Cure defaulted or accelerated obligations: Debtors can use the chapter 11 process to cure defaults on obligations such as mortgages or leases. Often, when a borrower defaults on legal obligations, the lenders "accelerate" that obligation. This means that the lender asks that the entire amount of the debt be paid in one lump sum payment. Debtors in chapter 11 reorganization may be able to cancel the debt acceleration, and return the obligation to pre-default status.
Assume or reject executory contracts and unexpired leases: Debtors may be able to "pick and choose" those equipment leases, real estate leases, or other long term (or "executory") contracts they wish to maintain. Debtors can reject any contract that they believe is not economically profitable.
Sell property free and clear of liens and interests: Debtors can use the chapter 11 process to sell assets that are encumbered by liens. The chapter 11 court has authority to allow a buyer to purchase those assets free and clear of the encumbrances.
Extend payment of unsecured tax debts: The bankruptcy code allows Debtors to use the chapter 11 reorganization process to extend payment of unsecured tax debts for up to five years.
Borrow post-petition: Debtors in chapter 11 reorganization may be able to borrow money while in reorganization in order to finance their reorganization.
You can consult our Bankruptcy FAQ for more information, or contact us today to schedule a free consultation with one of our qualified Oakland bankruptcy attorneys.
By Sam TaherianServing those who live in San Jose, Salinas and Oakland, California, Attorney Sam Taherian does not give up easily. His relentless strategies and insight into how to best solve debt related issues is invaluable. He is also dedicated to the non-profit work he does with the Bay Area Bankruptcy Forum as they work with public service and bankruptcy education.
Call today for your free, confidential evaluation with the firm!