Chapter 11 bankruptcies tend to be complex cases that are most often filed by businesses to reorganize by restructuring their debt or operations or liquidating their assets. Individuals and married couples are also able to file Chapter 11 cases to reorganize for the same purposes though most individual debtors choose one of the other types of bankruptcy when they file. The Debtor in a Chapter 11 case is able to maintain its business operations and keep ownership of its assets as it proposes a reorganization and payment Plan to deal with its Creditors. Most Chapter 11 cases do not require the appointment of a Trustee though there is the ability for the Court to appoint a Trustee in certain situations such as fraud or gross mismanagement by the Debtor either prior to the filing of case or during the case. Chapter 11 cases are overseen by the Office of the United States Trustee which is a Division of the U.S. Department of Justice in order to ensure compliance with the requirements of the Bankruptcy Code.
A Chapter 11 Debtor has wide latitude in what it can propose in a Plan, including the “valuation” of some secured claims which can reduce the amount of a Creditor’s secured claim or even eliminate the Creditor’s lien entirely with the result that the Creditor only holds an unsecured claim. This valuation process is often referred to as a “cramdown” and in the instance of the complete elimination of a Creditor’s secured claim, a “lien-stripping” or “strip-off”. Typically the Debtor will seek such valuation in a motion filed with the bankruptcy court which will be served on you. In many instances the motion will be served by “negative notice” which requires you to affirmatively oppose the Motion within a very short period of time (usually 14 to 21 days) failing which the Motion will be granted without hearing and without further notice. I’ve seen large homeowners/condominium association liens and second mortgage liens removed this way and oftentimes the affected creditor—after the fact—recalls receiving the Motion but doing nothing since it was not aware of what the Debtor was trying to do and the ultimate impact on the claim. It’s usually too late to do anything about one of these Orders once it is entered so make sure to contact your attorney if you receive a Motion or Debtor’s Plan which seeks to “value” your secured claim or otherwise modify your secured claim in any way.
Creditors have the ability to object to the Plan that the Debtor proposes as well as the ability to oppose any motions and other pleadings filed by the Debtor which affect the Creditor’s claims. As with the filing of a bankruptcy case under any Chapter, an automatic stay of nearly all collection efforts arises when a Chapter 11 case is filed so in nearly all instances Court permission is necessary for a Creditor to pursue its lien against the Debtor’s property outside of the bankruptcy process. Contact our bankruptcy attorneys to schedule a consultation to review your case and discuss the best course of action available to you.