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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
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Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Resolved Question:

Please answer the questions, only if you have a experience with Chapter 11 and answer specifically rather than generally. I have read and have general knowledge of the process.
My questions pertain to Chapter 11 filing for a Corporation that qualifies for a small business.
1. Can personal guarantor’s (loan/credit card) get sued during the chapter 11 process? Or the creditors are required to play along?
2. Who pays for attorney fees of creditors?
3. Does the filing have impact on personal credit?
4. Are secured creditors required to play along or they can force you to sell the secure asset?
5. Will it be obvious for customers that the business is in CH 11? I know its a public info.
6. For current open line of credits, credit cards, generally what kind of terms can you work out with them?
7. With the CH11 process, How long can you delay payments to creditors to accumulate cash to pay them in lump sums?
8. Can you delay payments to secure creditors?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 3 years ago.
1. Can personal guarantor’s (loan/credit card) get sued during the chapter 11 process? Or the creditors are required to play along?

A: A personal guarantor is liable for the primary debtor's failure to satisfy the debt. The guarantor may have a claim, or an objection to a debtor's plan if the plan attempts to modify the guarantor's obligations in Chapter 11.

2. Who pays for attorney fees of creditors?

A: The creditor pays, unless there is a contract which was not completed prior to the bankruptcy filing ("executory contract") that entitles the creditor to postpetition attorney's fees. And, the attorney's fees are subject to modification or discharge under the bankruptcy plan.

3. Does the filing have impact on personal credit?

A: If the debtor's business is a sole proprietorship or general partnership (an unregistered/unincorporated business), then yes -- otherwise no.

4. Are secured creditors required to play along or they can force you to sell the secure asset?

A: Depends. If the asset is the debtor's principal residence, and the creditor has a 1st lien, then the creditor is entitled to full payment, or it can foreclose on the property. Otherwise, the plan can force the creditor to "play along" under most, but not all circumstances. Obviously, an incorporated business entity does not have a "principal residence," in which case, the issue is irrelevant.

5. Will it be obvious for customers that the business is in CH 11? I know its a public info.

A: No.

6. For current open line of credits, credit cards, generally what kind of terms can you work out with them?

A: Creditors are entitled to at least what they would be entitled to in a liquidation. Creditors want to be paid as much as they can get without spending money on legal fees. A small business Chapter 11 can generally wipe out a large portion of unsecured debt. But, if there is a guarantor, who is also the owner of the business, then this is irrelevant, because the guarantor is on the hook, and usually, the guarantor will have to file personal bankruptcy to resolve the debt issues. A Chapter 11 in such cases, is usually a waste of time and money.

7. With the CH11 process, How long can you delay payments to creditors to accumulate cash to pay them in lump sums?

A: A plan must be confirmed by the court. If it is, then whatever is confirmed is what the creditor gets -- which could be a long wait for payment, if that's what is confirmed.

The whole plan is a negotiation, usually. When it's not, and creditors will be "crameddown" to accept what the court orders, then there are special rules that must be followed, requiring, among other things, that at least one creditor of an "impaired" class agree to the plan. if this occurs, then everything generally goes in favor of the debtor. But, it's not as easy as it reads, because of the multitude of rules to which the plan must conform. BotXXXXX XXXXXne, the more debt that the debtor tries to avoid, the more difficult the plan is to confirm. So, there is no "one size fits all" answer to your question.

8. Can you delay payments to secure creditors?

A: Usually not. To confirm a Chapter 11, there must be income, and if there's income, then everyone is entitled to some of it during the plan.

Hope this helps.


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!

Customer: replied 3 years ago.
Question #1) If the plan is confirmed, does the creditor have right to sue the loan guarantor personally?

Question #4) The business asset includes equipment, if the plan includes to pay them in full overtime, can a secured creditor force you to sell the equipment before the plan is implimented. The personal guarantor has also put up his residence as a collateral for the secured loan, can they force the sale of the house, even if the plan inludes paying them in full.

Question#7. How long is long wait? approx. 6 mo? 1 year? 2 years?

Question#8) Lets say there is income. Do the secured creditors have to be paid in full per prior loan agreement or payments can be delayed to accumulate cash.
Expert:  socrateaser replied 3 years ago.
Question #1) If the plan is confirmed, does the creditor have right to sue the loan guarantor personally?

A: Yes.

Question #4) The business asset includes equipment, if the plan includes to pay them in full overtime, can a secured creditor force you to sell the equipment before the plan is implimented?

A: No, unless the plan cannot be confirmed, in which case, the court will either dismiss the bankruptcy entirely, or permit a liquidation of assets, which would income the secured equipment.

The personal guarantor has also put up his residence as a collateral for the secured loan, can they force the sale of the house, even if the plan includes paying them in full.

A: Yes. The personal guarantor's property is not part of the bankruptcy estate. If the debtor defaults, then the guarantor's property is on the hook, unless the guarantor pays the debt.

Question#7. How long is long wait? approx. 6 mo? 1 year? 2 years?

A: I doubt that a court would do more than permit a 20% balloon at 5 years, and then there would have to be some pretty good evidence of the debtor's long-term viability.

Hope this helps.

Question#8) Lets say there is income. Do the secured creditors have to be paid in full per prior loan agreement or payments can be delayed to accumulate cash.

A: Depends on the plan. A plan where creditors are not being paid in a fair manner will not be confirmed. If the plan is dependent upon an accumulation of cash, before anyone is paid, then that plan will not be confirmed, in my opinion. So, the answer is probably "no."

Hope this helps.


And, if you need to contact me again, please put my user id on the title line of your question (“ToCustomerrdquo;), and the system will send me an alert. Thanks!

socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 34674
Experience: Attorney and Real Estate Broker -- Retired (mostly)
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socrateaser
Bankruptcy Lawyer
34674 Satisfied Customers
Attorney and Real Estate Broker -- Retired (mostly)