Chapter 11 Bankruptcy & Creditors

A long time purchaser of your inventory has just filed bankruptcy under Chapter 11 of the Bankruptcy Code while still owing you a large sum of money. A creditor's initial reaction is often despair. They believe that it is the end of the world and that they will be lucky to recover a few cents on the dollar. Do not despair! There is some hope for recovery of your money.

Plan of Reorganization

In a Chapter 11 bankruptcy, the debtor's goal is to reorganize and reemerge as a functioning entity. This goal is accomplished by developing a business plan, which must be approved by the bankruptcy court.

A Chapter 11 bankruptcy may be beneficial to both debtors and creditors. Debtors benefit because they continue to operate their businesses while creditors cannot seize their assets. Creditors benefit because there is the possibility for recovering the debt owed and because long standing business relations can be continued. The theory behind allowing debtors to remain in possession of operations is that current management is familiar with the business dealings and is best equipped to restore it to viability.

The Automatic Stay

Debtors also benefit from the "Automatic Stay in Bankruptcy". The Automatic Stay is immediately effective, and operates to prohibit actions against property of the debtor's estate. It provides the debtor with breathing space to allow it to formulate how best to pay off its creditors and reorganize its affairs.

Debtors are also provided with additional benefits under Chapter 11 of the bankruptcy code. Under certain circumstances, debtors may sell property free and clear of liens. In addition, when appropriate, the debtor in possession may assume, reject or assign executory contracts or unexpired leases, even if the terms of the contract do not permit it. Nevertheless, creditors may be surprised to discover that the Automatic Stay not only assists the debtor, but can also serve to protect a creditor. By staying all actions against property of the debtor's estate, the assets of the debtor can be preserved and a single creditor cannot deplete all of the debtor's assets to the detriment of other creditors. The Stay allows for orderly distribution of assets to creditors and/or time for the debtor to formulate a plan to treat all of its creditors fairly.

Creditors may also obtain relief from the Automatic Stay upon a showing of cause warranting such relief, such as the proof of a lack of adequate protection for creditors or failure to pay post-filing obligations on contracts and leases. Property with no equity and that is not necessary for an effective reorganization may be subject to relief from the Stay.

Benefit to Creditors

Creditors can also benefit from a Chapter 11 reorganization if the debtor is able to reemerge as a functioning entity. A Chapter 11 reorganization plan may lead to payment of the debt. While the payment may not be immediate or in full, it is often more than what would have been received in a Chapter 7 liquidation.

Finally, creditors will have an element of control over the debtor. Upon the filing of a Chapter 11, the debtor provides the court with schedules listing all of its assets and liabilities. These schedules inform the creditor as to where all of the debtor's assets are located and what priority will apply to the creditor. The creditor can therefore monitor the debtor's reorganization and assert some control over the debtor's actions. In short, a creditor will discover that the filing of a Chapter 11 bankruptcy is not necessarily the end of the world and that the creditor as well as the debtor can actually benefit.

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The above is not meant to replace legal counsel. If you'd like to speak to an attorney, please contact the offices of Gross & Romanick by calling 703-273-1400 or by filling out our online information request form.

Partners At Gross & Romanick: Edward Gross

We thought we'd take some time to introduce you to the people behind Gross & Romanick.

Edward Gross has practiced law since 1980. He began as a solo practitioner in Fairfax City, Virginia. As a result of handling hundreds of court-appointed criminal trials throughout Northern Virginia, Maryland and the District of Columbia, he gained extensive litigation experience. During the 1980's, he defended his clients at seven criminal jury trials without a loss. Slowly he developed a collections practice which enabled him to utilize his court knowledge and his investigative aptitude. Ed found he could locate people and their assets where no one else succeeded. His growing reputation led to being hired by a prominent national commercial landlord to collect unpaid rental obligations. Within the first year as attorney for this landlord, Ed collected a One Hundred Thousand Dollar obligation owed by a defunct company. Ed now represents many large commercial landlords in the Northern Virginia region.

Because of his ability to combine legal acumen with hard work, Edward Gross has developed a loyal clientele. While Ed has many large business clients, he applies himself to every task he undertakes including representing small businesses and individuals. During the past few years he has written hundreds of contracts and litigated very high dollar cases.

Having run his own businesses since 1971, Ed enjoys doing the legal work necessary to help his clients in their commercial ventures. He enjoys negotiating deals and then writing the agreements that protect his clients' interests. Ed has helped to establish numerous start-up corporations and has advised many businesses on matters ranging from employment issues, creating software vendor's agreements, to the purchase and sale of businesses.

To learn more about Edward Gross, visit our website or call 703-273-1400.

Another Satisfied Northern Virginia Client

Jeff Romanick of Gross & Romanick recently received the following note from a client:

Jeff,

I would like to take a moment and express my deepest gratitude to you and your law firm for the exemplary manner in which you handled my case. I am very pleased with the thoroughness and professionalism you demonstrated throughout the process. You handled my case with utmost diligence and authority. I wish you the very best.

Thanks again.

If you'd like to meet with Jeff or Gross & Romanick's legal team, don't hesitate to contact the firm today.