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.
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.
Debtors that are operating a business can continue business operations in Chapter 11. This means that the business name, goodwill, and customer base are not lost.
While in Chapter 11 reorganization, debtors may be able to temporarily defer making certain rent or installment debts.
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.
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.
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.
The Chapter 11 process may be used to sell assets that are encumbered by liens. The chapter 11 court has the authority to allow a buyer to purchase those assets free and clear of the encumbrances.
The bankruptcy code allows Debtors to use the chapter 11 reorganization process to extend the payment of unsecured tax debts for up to five years.
Debtors in chapter 11 reorganization may be able to borrow money while in reorganization in order to finance their reorganization.
Serving 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.
By Sam Taherian
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