What Is Chapter 11 Bankruptcy and Who Can Get It?

ByNikolina Cveticanin
June 24,2022

When running a business or reviewing our personal finances, more often than not, we find ourselves lacking funds for something. If it’s something luxurious, most of us simply won’t get it unless it’s absolutely necessary. After all, bad credit loans are something all of us try to avoid. Still, when we need something for our company to grow, we’ll try to get a loan.

The more money we need, the bigger the loan’s drawbacks. So what happens if we can’t pay those loans back? Bills and debts start piling up, and you don’t know which way is up anymore. If you’ve drained every option and even bad credit loans are no longer an option, it might be time to declare bankruptcy.

Is that the right choice for you, and how will you get back on your feet afterward? Well, the US government came up with a few solutions, one of them being Chapter 11. But what is Chapter 11 bankruptcy?

Chapter 11 ​​Bankruptcy Explained

By definition, Chapter 11 bankruptcy involves reorganizing a debtor’s assets, debts, and business affairs, which is why it’s also known as "reorganization" bankruptcy. Although it’s available to individuals and businesses alike, it’s mostly used by companies.

Commonly, the debtor is allowed to keep their possessions, is viewed as a trustee, may continue to run their business, and (with court approval) borrow money again. When a reorganization plan is developed and proposed, creditors vote on it; if it passes and fulfills specific legal prerequisites, it is approved by the court.

The purpose of the Chapter 11 bill was to help businesses regroup and set up a strategy for the future. This plan may contain modifying payment due dates and interests and can even remove a debt entirely.

How Does Chapter 11 Work?

All bankruptcy chapters, including Chapter 11, halt the collection process. Once filed, the "automatic stay" forbids most creditors from hunting you, giving you enough room to breathe and figure out your next move. This temporarily stops:

  • Payment demands
  • Removal or any kind of foreclosure
  • Collections trials
  • Till taps, property confiscation, bank levies

Unlike other chapters, Chapter 11 allows the debtor to act as the trustee, meaning that they can continue everyday business functions as a "debtor in possession" while Chapter 11 restructuring takes place.

However, the business can not make all decisions without court permission. Restricted decisions include sales of any assets other than inventory, creating or closing a rental agreement, taking out new loans, and controlling business operations.

The court also controls payment decisions and contracts related to attorneys, vendors, and unions. Ultimately, the debtor cannot take out a loan that will begin after the bankruptcy is complete.

Is Chapter 11 the Best Bankruptcy Option for You?

There are nine chapters in Title 11 of the US Code, each focusing on different bankruptcy strategies. Chapters 1, 3, and 5 explain the legalities of bankruptcy for all parties involved, including the debtor, creditor, and court. 

The other chapters explain who can file for bankruptcy and how to do so according to who they are or whom they represent:

  • Chapter 12 is for family farmers or family fishers with regular income. 
  • Chapter 15 is used in international cases.
  • Chapter 13 is for individuals with stable income and has certain debt restrictions.
  • Chapter 7 is the liquidation bankruptcy chapter for people who cannot create a reorganization plan and provides them with information on liquidating their remaining assets.

How to File for Chapter 11 Bankruptcy

Now that Chapter 11 bankruptcy has been explained, let’s go over the procedural part. It begins by filing a petition at the debtor’s residential area or incorporation location’s federal bankruptcy court. It may be a voluntary petition, filed by the debtor, or an involuntary one, filed by creditors that meet specific requirements.

Then, the creditors vote if the plan within the petition is acceptable. Since the next option is usually filing for a Chapter 7 bankruptcy, meaning liquidation, creditors are typically cooperative.

However, if a creditor objects to the plan, the court will get the input from creditors and other interested parties, before deciding on the best course of action. The determining factors include:

  • Success probability
  • Good faith
  • The creditors’ best interest
  • If it is fair and equitable

So how long does Chapter 11 take? Well, there are technically no limitations. Some cases take only a few months, but it often takes six months to two years for a case to close.

Does Chapter 11 wipe out all debt?

It can, if the court decides it is the best course of action, due to the debtor not having enough resources to repay said debt.

What qualifies you for Chapter 11?

Your debts can’t surpass $1,184,200 in secured debt (mortgage, car payments, etc.) and $394,725 in unsecured debt (credit cards) if you want to qualify for this solution.

What is the difference between Chapter 11 and Chapter 7?

The main difference between Chapters 11 and 7 is that the entity filing for bankruptcy with Chapter 11 remains in control of its operations and isn’t required to liquidate assets; both things are necessary with Chapter 7.

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By Julija A. · May 24,2022
Just as we often resort to financial institutions such as banks to ask for a loan when we can't afford expensive purchases, businesses can also do it when they lack the capital to fund their operations. However, instead of going to a bank to ask for a loan, most business owners opt for signing a bond with investors, not only because it allows them to borrow larger sums of money but also because bonds have longer maturities.  At this point, you may be saying, “Hold on, what are bonds and how do they work?” Well, this article is all about bonds, so keep reading to find out. What Are Bonds? Simply put, a bond is a source of funding that companies obtain through the public through investment banking. Even though bonds are similar to loans since they both involve money borrowing and interest rates, one significant difference sets them apart.  Unlike loans, which come from financial institutions and have short repayment periods, investment bonds come from individual investors or even other, larger corporations and have longer maturities. But in essence, yes, bonds are a type of loan. When you issue bonds, you're committing to repaying the entire amount and paying periodic interest payments to the bond issuer. The payment of interest depends on the arrangement between the two parties, but they are often made twice a year, and the rate is lower than compared to an actual loan from a financial institution. Understanding Bonds - How Do They Actually Work? When companies or other entities like governments need to raise money to fund their operations or maintain ongoing ones, finance new projects, or simply pay existing debts that are about to mature, they may issue bonds directly to investors. After the decision to issue a bond has been made, business owners present their case to investors, who decide if investing is a good idea after analyzing the company’s financial situation. If investors believe you're in a good position to pay the money back in the stipulated time lapse, they will purchase the bond and become bondholders. Keep in mind that, after being issued, investment bonds can be sold by the initial bondholder to other investors. That means a bond investor is under no obligation to hold a bond all the way through its maturity date and can sell it on the secondary market whenever they want if they decide to do so.  Bondholders may decide to 'resell' bonds if they believe they could increase in value and get gains on the sale. 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By Vladana Donevski · December 22,2022
It’s never a good idea to mix your personal money with your limited liability company funds and thus be personally liable for your LLC’s legal obligations and potential debts.  That’s why we’ve compiled detailed instructions and a comprehensive list of requirements for opening a bank account for an LLC. Stay with us and learn more about the procedure and the required documents.  Why Should Your LLC Have a Designated Bank Account? There are a variety of legal and practical reasons for you to open a designated business checking account for your LLC. Here are some of them: Having an LLC means that you have formed a separate business entity. If your LLC doesn’t have a separate bank account, your personal and business finances will be commingled, and you’ll be at risk of jeopardizing the LLC. Should your LLC end up in debt or get sued, your personal funds won’t be sought after, leaving only your business funds open for scrutiny. If you set up an LLC bank account, calculating the taxes, keeping track of your business’s expenses and income, and preparing and auditing financial statements will be much easier. With two separate accounts, you won’t need to pay your accountant for doing the extra work of sorting through your personal and business expenses.  When paying your business partners, stating your company’s name on the check instead of your personal information seems more professional. Your clients will take you more seriously when you have a separate account for your business. Another practical reason for a dedicated checking account for your LLC is that it can be a requirement for applying for an LLC business loan or a good business credit card.  How To Open a Business Bank Account for LLC Now that you know why a separate bank account is a good idea for your LLC, here are the steps you need to take to get one: 1. Choose a Bank The first step when opening a bank account is choosing the right bank for your small business needs. When shopping around for the bank that you’ll place your trust in, pay attention to the following: Online or Brick-and-Mortar Bank Depending on whether you prefer to go to the physical bank branch or enjoy banking from your home or office, you can open an LLC bank account online or choose a bank with physical branches. If you decide on the latter, a favorable system is to pick the same bank you have your personal account with. Visiting the same branch for both business and personal transactions can save you a lot of time. Check the Fees There are other basic LLC bank account rules, such as checking which banks offer the best terms, conditions, and fee structures. That’s why you should always ask about the monthly maintenance fee, minimum monthly balance, minimum initial deposit, and overdraft fees before you make a decision.  You should also see whether you can write checks and if there are any promotions, enticing rewards programs for business customers with high balances, or discounts on loans.  Debit and Credit Cards Most banks will issue you a debit card for your business account right on the spot, while others might mail them, so you could end up waiting for a couple of days. An LLC debit card is useful for tracking your business expenses.  Make sure to check whether the bank offers a business credit card that you can use for cash-back rewards, miles, points, and other perks. 2. Gather the Documents When you decide to open an LLC bank account, the requirements might differ from institution to institution. However, here’s a list of some of the most common documents that banks will ask you to submit: A copy of LLC’s articles of organization is a legal document that establishes your LLC at the state level. Depending on where your company is registered, this document can also be referred to as a certificate of formation or certificate of organization.  Your Employer Identification Number is necessary as it lets the IRS identify your business entity for tax purposes. If the LLC is formed as a single-member LLC, you can provide the Social Security number of the sole proprietor. Also, an EIN verification letter would be accepted, too.  An LLC operating agreement is necessary when opening a bank account for an LLC as it lets the bank know who is authorized to sign, deposit, and withdraw funds on behalf of the company. Government-issued photo ID, such as a valid driver’s license or a passport is a must. Additional documents will be required if the LLC is doing business under a different name. Banks usually accept a business license, trade name certificate, fictitious name certificate, certificate of assumed business name, or occupational license. 3. Fill In the Application If there’s an option to open a bank account for your LLC online, you’ll be required to fill out the application form. It usually asks for information such as the name and address of the business, the date the company was established, the country and state of legal formation, and the country and state of the primary business operation. Keep in mind that the business must be formed and operational in the US. Be prepared to enter your company’s EIN number and personal information, such as SSN, for all business owners listed in the application, should they have at least 25% of the ownership. Remember that you’ll also be asked to state the person who will be authorized to sign financial and legal documents. Unless you’re a single-member LLC, that is. Some banks will require applicants to come personally to the branch and meet with a designated banker to discuss setting up a bank account for their LLC. In that case, make sure to call the bank beforehand and inquire about all the necessary documents so that you can come prepared. 4. Fund Your Account Congratulations! The time has come to fund your account using any of the deposit methods supported by your bank. Make sure to check whether the bank asks for a minimum deposit amount. What About Nonresidents? Nonresidents, too, can open a business bank account in the US. However, in that case, the business needs to be officially registered in the US and have its unique EIN number. So, how do you open an LLC business bank account if you are a nonresident? If you registered your LLC in the US and got your EIN number so that the IRS could identify you, the first step would be to find a bank with foreigner-friendly options.  Then, the documents: You won’t need a residency requirement, an SSN, or an Individual Taxpayer Identification Number, but most banks will require the following: LLC’s registered agent address as LLC’s office address or proof of having an office in the US. A lease agreement or utility bill works, too. The EIN number A certificate of formation, articles of organization, or an equivalent document LLC’s operating agreement or an equivalent document  A US phone number Foreign driving license and foreign passport Information on the company’s owners In most cases, setting up a bank account for your LLC when you’re a foreign entity has to be done in person. However, some banks might allow you to start the procedure online and then show up to hand over the documents. There are also agencies that help you set up a US business remotely using a registered agent.  Business Credit Score Concerns A business’s credit score is a potential problem that’s often overlooked.  Similar to your personal FICO score, from the moment you open your business account, you’ll start to build up your business credit history. Opening a bank account for an LLC also means that the way you run your business can affect your credit score in both good and bad ways. These numbers are available to the public and will be used by banks to decide if you can get a business loan or insurance, as well as by potential business partners and rental agencies.  Whereas a personal credit score usually falls between 300 and 850, your business score will range anywhere from one to 100. The calculating models depend on which of the three major bureaus the bank reports to: Dun & Bradstreet, Experian, or Equifax.  Finally, even though it would be beneficial for your business to maintain a good credit score, remember that even if you end up with a less-than-stellar score, you can still get a business loan. Final Thoughts  If you’re still wondering whether you should open a bank account for your LLC, we can assure you that it’s worth the effort. With a business account, your personal assets will be safer, you’ll appear more trustworthy to your business partners, and it will be much easier for you to keep track of your business transactions.
By Vladana Donevski · December 22,2022

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