Chapter 11 bankruptcy is a legal mechanism primarily used by businesses and certain individual debtors and is often referred to as “reorganization” bankruptcy. This chapter of the United States Bankruptcy Code offers a way for entities to maintain operations while devising a court-approved plan to pay creditors over time. Unlike other forms of bankruptcy, Chapter 11 provides a flexible framework that accommodates larger corporations as well as small businesses, balancing the interests of debtors and creditors. It is more complex than Chapter 7 or Chapter 13 bankruptcy and is typically used by corporations, partnerships, and LLCs. Although Chapter 11 is a federal provision of the Bankruptcy Code, there are certain laws specific to Massachusetts that are used to determine how to proceed in bankruptcy as well.

Procedures Involved In Massachusetts Chapter 11 Bankruptcy:

  • Filing a Petition: The process begins with filing a petition in bankruptcy court. The business can do this voluntarily or creditors can force the filing.
  • Disclosure Statement and Reorganization Plan: The debtor must provide a detailed disclosure statement and a reorganization plan. This plan outlines how it intends to restructure and pay its debts.
  • Automatic Stay: Upon filing, an automatic stay is put in place, stopping most collection actions against the debtor or the debtor’s property.
  • Creditors’ Committee: A committee of creditors is often formed to negotiate terms with the debtor. 
  • Priority of Claims: Certain debts, like secured debts and tax obligations, have priority over others.
  • Debtor in Possession (DIP): The company filing for Chapter 11 usually remains in control of its assets and operates as “debtor in possession.” However, in cases of fraud, dishonesty, or incompetence, a trustee may be appointed.
  • Reorganization Plan: The Plan must first be approved by a bankruptcy judge, as well as typically the creditors. It may propose downsizing to reduce expenses, renegotiating debts, or liquidating some assets to pay creditors. After approval of the plan, a confirmation hearing is held before the plan is executed.
  • Exit from Chapter 11: You can exit from Chapter 11 either by successfully completing the reorganization plan, or if the reorganization fails, the case may be converted to a Chapter 7 or it will be dismissed.

The advantage of a Chapter 11 Reorganization Plan is that it allows businesses to continue operating, preserve jobs, and potentially recover from financial distress. The disadvantage is that these types of plans can be costly and complex, with a significant amount of time and resources needed for the restructuring process.

Keep in mind that although bankruptcy is governed by federal law, state laws can also play a role. For example, there are also state-specific aspects, such as Massachusetts exemptions listed under Massachusetts General Law ch.235, § 34, and local bankruptcy rules specific to the District of Massachusetts. Exemptions allow you to shield assets through the bankruptcy process. Massachusetts is one of those states that allows debtors to choose either the federal exemptions or the home state exemptions, but you must choose one or the other. 

Massachusetts law tends to be more generous with bankruptcy exemptions than under Federal law. Some common exemptions under Massachusetts law to give you an example are the following: a homestead exemption of up to $500,000 (($1 million exemption for 2 individuals who are elderly/disabled); personal property such as necessary clothing and bedding, in addition to household furniture up to $15,000 and certain utility expenses; an automobile valued at $7,500 or $15,000 for 2 elderly/disabled individuals; as well as specified wage and pension exemptions.

Takeaway And How A Bankruptcy Attorney Can Help

Bankruptcy laws can change, so it is important to obtain legal guidance. Each case has a unique set of circumstances, impacting how the process unfolds. Therefore, consulting with an experienced bankruptcy attorney is essential. The law firm of Logan A. Weinkauf, P.C. can provide you with counsel based on the latest laws and regulations, as well as help you navigate the specific complexities of your case. Contact Logan A. Weinkauf, P.C. for a free initial consultation regarding Chapter 11 bankruptcy.

Weinkauf, P.C. provides experienced and tailored legal guidance and services to clients filing for Chapter 11 bankruptcy throughout New Bedford, Mashpee, Cape Cod, Barnstable County, and Bristol County MA.