Tuesday, December 14, 2010

The Power of the Chapter 11 Debtor-In-Possession

Unlike Chapter 7 and Chapter 13 a Debtor in Chapter 11 bankruptcy stays in control.  When an individual or business files a Chapter 7 a Trustee is appointed to oversee almost every aspect of the bankruptcy.  Among other things this includes who to sue to recover assets and money, how to operate business, and how to dispose of assets and debts..
                In a Chapter 11 bankruptcy there is no Trustee appointed to oversee the case, except in the rare occasion that one is ordered.  This means that more of the power stays in the hands of the Debtor.  The Debtor then gets titled the Debtor-In-Possession because the Debtor stays in possession of the bankruptcy estate.
                Obviously with power comes responsibility.  The Debtor is required to file a monthly operating report showing how much money was made and spent in each month so the creditors and U.S. Trustee’s Office can know how business is going.
                All being said Chapter 11 bankruptcy allows more individuals with real estate issues or businesses to keep control of their situation and to use their own business judgment when deciding how to operate.  For more information please go to http://chapter11jax.com or call me at (904) 521-9868.

Thursday, December 9, 2010

The Absolute Priority Rule and Individual Chapter 11 Bankruptcy

The Absolute Priority Rule and Individual Chapter 11 bankruptcy is a hot newer topic that is finally working its way through Florida and the United States.  Judge Jenneman in Orlando made a recent decision that may ultimately impact the usefulness of Chapter 11 as it relates to individuals.
                Her recent decision in In re Gelin, 437 B.R. 435 (Bankr. M.D.Fla.2010) applied the Absolute Priority Rule very strictly.  She stated that in order for the Debtor to retain any pre-filing property that the Debtor had to pay 100% to unsecured creditors.  This is of course very difficult for individuals in bankruptcy.
                Prior to the 2005 amendments there was no argument that the APR applied to individual cases because there was no specific rules relating to individual chapter 11 cases.  However this all changed in 2005 when Congress amended Chapter 11 to specifically deal with individuals that had to file Chapter 11.  These amendments made it more feasible for individuals to actually make it in and out of bankruptcy and brought the individual Chapter 11 more in line with a Chapter 13.
                There is case law on both sides of the table on this issue.  Early on after the amendments the cases were coming down in favor of a more favorable view of the APR in individual cases.  However now the pendulum seems to have moved to the other side and the Gelin decision is just the most recent decisions that could destroy the individual Chapter 11.