Chapter 11 New York Style

Chapter 11 is the part of the United States Bankruptcy Code which permits reorganization under US bankruptcy laws, and for businesses in New York a local attorney should be retained to manage the process.

There are increasing foreclosures in the State of New York, from New York City to Utica. As a result of this trend many people are wondering whether they can use Chapter 11 to save a home facing foreclosure, or as a protection against mortgage obligations that cannot be met.

There are no eligibility requirements for a Chapter 11 New York, and the basic process is one where a plan of reorganization is presented to creditors, who then vote on the plan, which is subject to Bankruptcy Court approval.

A debtor can ask to modify loans secured by a home, and where the home’s value has fallen, the debtor may be able to split a mortgage creditor’s claim into secured and unsecured portions. Thus a debtor need not be tied to the original repayment term and repayment amounts described in the loan documents. Debtors can also seek relief on interest only loans.

Using a personal Chapter 11 bankruptcy homeowners in New York, who are not eligible for Chapter 13, can protect their homes.

Attorneys are expensive and whilst this is the main cost consideration in a Chapter 11, it should not be the sole criteria to use in hiring an attorney. Chapter 11s actually got a whole lot more expensive after changes to the Bankruptcy Law in 2005. The changes, driven by credit card companies lobbying congress, made bankruptcy proceedings more complex, which gave specialist attorneys a higher barrier to entry and a chance to protect their fees.

You can investigate Chapter 11 fees easily since by law all bankruptcy attorneys are required to publicly disclose their fees on a Statement of Compensation filed with the debtor’s bankruptcy petition. In cases that are more adversarial, such as in a bankruptcy lawsuit brought by a creditor or the trustee, costs are higher.

The Debtor sits in the midst of a myriad of players involved in a bankruptcy, including:

• Administrative creditors
• Secured creditors
• Priority unsecured claimants
• General unsecured claimants and committees
• Tenants, licensees and franchisees
• Landlords, franchisors and lessors
• Trustees and examiners
• United States Trustee

The debtor is the business, or individual conducting business, that is being reorganized. A debtor must be balance sheet or cash flow insolvent to qualify. If a court determines that a business does not require Chapter 11 protection it will dismiss the claims. The secured creditors have claims that are secured by interest in assets such as real estate, to the extend that the value of the assets covers the claims. Claimants that are entitled to fees for goods and services provided to the debtor after a Chapter 11 petition are known as administrative claimants. Priority unsecured claimants hold general unsecured claims, and have priority over general unsecured creditors who have general unsecured claims relating to activities prior to the Chapter 11 petition. These general unsecured creditors have their interests protected by committees, such as the Creditor’s Committee. Landlords, franchisers and licensors have contracts with the debtor, and how these contracts are dealt with is one of the most complex and interesting parts of Chapter 11 law. The court can appoint a trustee in place of a debtor where there is evidence of fraud on the part of the debtor. The United States Trustee is a division of the Department of Justice, and an attorney from this office monitors a Chapter 11 case for compliance with the law.

Claims in a Chapter 11 New York case are paid in priority order, and generally speaking not until the prior claims have been fulfilled in full does the next claimant have the opportunity to receive any payment. The priority order is:

1. Secured claims
2. Administrative claims
3. Priority unsecured claims
4. General unsecured claims
5. Equity interest