What Are the Advantages of Chapter 11 Bankruptcy in New Jersey?

Chapter 11 bankruptcy in New Jersey is a legal process in which a New Jersey company can restructure its debt, discharge some unsecured debt and continue to operate. Chapter 11 is often referred to as "reorganization bankruptcy." Chapter 11 bankruptcy allows a debtor company to obtain a relatively fresh start by forgiving qualified debts and creating a payment plan. Chapter 11 bankruptcy offers several advantages to New Jersey debtor companies.

Automatic Stay

Once a company files for Chapter 11 bankruptcy, the bankruptcy court will impose an automatic stay. The automatic stay bars any creditors from going forward with any collection efforts, including, but not limited to, foreclosure attempts, wage garnishment, vehicle repossessions and harassing telephone calls. If the debtor company is not eligible for Chapter 11 or has committed fraud, the creditors may move to dismiss the bankruptcy, which, if granted, terminates the automatic stay. In the alternative, if the court finds the company cannot be salvaged, it may convert the bankruptcy to a Chapter 7 liquidation proceeding, which keeps the automatic stay in place. Any termination of the automatic stay will permit the creditors to restart collection efforts.

In a New Jersey Chapter 11 bankruptcy, a debtor company can submit a plan of reorganization for the court's approval. The plan sets forth the debtor company's proposal for moving forward to use its existing income to pay its debts. It also proposes which debt it wants the court to modify or discharge. Any creditors who hold debt that the debtor company seeks to modify or discharge get to vote by ballot on whether they object to the plan. The court then conducts a hearing. While the judge may consider the creditors' vote, the judge can approve the plan over their objection(s). The advantage is that creditors do not have veto power of a debtor company's reorganization plan.

As part of a reorganization plan, companies that file for Chapter 11 may have some unsecured debts forgiven. Unsecured debts mean debt that has no underlying asset. Examples of unsecured debt include, among other things, credit card debt, loans and many judgments. Not all unsecured debt is dischargeable, however. Generally, companies cannot discharge most taxes and many secured debts, among other things, in a bankruptcy proceeding.

While Chapter 11 offers advantages to debtor companies, bankruptcy carries several huge disadvantages as well and should only be pursued after carefully considering all of your options. In addition, Chapter 11 is costly and complex and typically used by large companies. Please consult a qualified bankruptcy attorney to find out if bankruptcy is the right plan for your company's financial situation. This article is not intended to give legal advice.