When a business files for Chapter 11 bankruptcy, debts that are individually guaranteed by the owner (or by others, such as family members) can have different consequences from the debts of the business that do not have individual guarantees. While the Chapter 11 process allows for individually guaranteed debts to be negotiated as part of the reorganization plan, renegotiation is not assured. When a business has individually guaranteed debts, getting help from an experienced Chapter 11 bankruptcy lawyer early in the process is essential.

The Chapter 11 Bankruptcy Process

The Chapter 11 business bankruptcy process provides an opportunity to negotiate the resolution of issues relating to individually guaranteed business debts during the discussion of the proposed Plan of Reorganization submitted by the business. Before getting to that point, the debtor must initiate the case by filing a Chapter 11 petition in the bankruptcy court where the debtor has a domicile, residence, or principal place of business.

Filing the petition creates an automatic stay that prohibits most creditors from pursuing payment requests, collections, eviction, foreclosure, and other property seizure and collection processes. The business becomes the debtor in possession after the petition is filed and continues to manage and operate the business during the bankruptcy case. Unless the business requests and receives an extension, a Plan of Reorganization and a Disclosure Statement must be submitted to the bankruptcy court within 120 days after the petition is filed.

The debtor has full responsibility for preparing the Reorganization Plan submitted to the court. The Plan must meet specific standards. Overall, the Reorganization Plan proposes how the debtor will continue to operate, while reorganizing its debts, assets, and obligations during the reorganization period, which is typically three to five years. When the business has individually guaranteed debts, the debtor may include those debts as part of the initial Reorganization Plan, under certain circumstances, even though Chapter 11 normally does not eliminate personally guaranteed debts of the business.

After the court reviews the debtor’s Plan and approves the disclosure statement, the creditors’ committee, or the creditors themselves, along with the US Trustee’s office, review the reorganization plan and may request modifications. Extensive negotiations and discussions frequently take place, involving many details of the reorganization plan. Many times, the debtor files a modified plan with the court. After the creditors’ committee, or individual creditors, votes on the modified plan, the court reviews the plan to determine whether it meets legal requirements and specific criteria for confirmation (approval) by the court.

Negotiation of Individually Guaranteed Debts in Chapter 11

A business with individually guaranteed debts is more likely to succeed in renegotiating those debts as part of a Chapter 11 business bankruptcy when the debtor has assistance from an experienced, skilled Chapter 11 bankruptcy lawyer. The lawyer understands how those debts can be included in a reorganization plan and how to approach negotiations relating to those debts during the creditors’ committee discussions.

While it often is possible to renegotiate individually guaranteed debts as part of a Chapter 11 business bankruptcy, there is no assurance that those debts will be included in the reorganization plan approved by the creditors’ committee and the court. If those debts are not addressed in the business bankruptcy, the business owner may pursue a Chapter 11 individual bankruptcy case to renegotiate those debts.

The preceding discussion relates only to Chapter 11 business bankruptcy. If the business can qualify for small business bankruptcy under Subchapter V of Chapter 11, personal asset protection will be subject to different treatment.

Importance of Legal Counsel

Chapter 11 is the most complex type of bankruptcy. In particular, the complicated process of addressing issues related to individually guaranteed debts makes the need for trustworthy, experienced legal counsel imperative. Any business considering Chapter 11 bankruptcy should consult with an experienced Chapter 11 bankruptcy attorney and fully understand the process before proceeding with filing a petition.

At Wernick Law, we focus primarily on assisting debtors in obtaining Chapter 11 protection and achieving debt restructuring and company-wide reorganization for Florida businesses. We also represent individuals in Chapter 11 proceedings. We apply more than 20 years of complex bankruptcy experience in providing comprehensive Chapter 11 legal services.

Our proven record of success is due to the high level of Aaron Wernick’s knowledge and skill, his steadfast dedication to protecting his clients’ interests, and his exceptional problem-solving and negotiation skills. Aaron successfully guides difficult cases to the finish line by focusing on what best serves the client and advocating for the client, while strategically and efficiently pursuing solutions that resolve disagreements and ultimately lead to confirmation of a reorganization plan.

Connect With a Trusted Florida Chapter 11 Bankruptcy Lawyer

Wernick Law welcomes Florida business owners and individuals to schedule a consultation by calling 561-961-0922 or using our contact form.