Debtor & Creditor Rights

Structure Law Group, LLP represents debtors and creditors in a wide-range of bankruptcy and insolvency matters.  Such matters include commercial debt collection; pre-and post-judgment remedies, including pre-and post-judgment attachment, receiverships, writs of execution, bank and other levies, debtor examinations and various other collection remedies; enforcement and defense of judgments; alter ego liability; prosecution and defense of fraudulent conveyance actions; debt restructurings and workouts; and insolvency and pre-bankruptcy counsel to both creditors and financially distressed businesses. 

Structure Law Group, LLP also handles a wide-range of commercial law matters and counsels businesses, business owners, investors, guarantors, lenders and real estate market participants in matters relating to alter ego liability, guarantor liability and defenses, anti-deficiency laws, and fraudulent conveyance and related issues.

Bankruptcy Overview - The Bankruptcy Process

Structure Law Group, LLP's business lawyers represent creditors in bankruptcy proceedings and in bankruptcy litigation, including matters such as claim prosecution, stay relief, preference defense, turnover actions, lien avoidance, dischargeability actions, and various types of adversary proceedings that frequently arise in a chapter 11 bankruptcy.  

Chapter 11 bankruptcy is the reorganization chapter of the United States Bankruptcy Code.  Chapter 11 is available to businesses and individuals (the latter, subject to several conditions) but is typically used by businesses to restructure their debts and obligations through a plan of reorganization voted on by creditors and approved by the bankruptcy court. 

There are many steps involved in a chapter 11 bankruptcy, beginning with the filing of a petition, schedules, and a statement of financial affairs.  There are also a number of substantive requirements imposed by the Bankruptcy Code.  Upon the filing of a voluntary petition under chapter 11, or the entry of an order for relief in an involuntary case, the debtor automatically becomes a “debtor in possession” and placed in charge of operating the chapter 11 estate.  The term “debtor in possession” refers to the fact that the debtor in a chapter 11 case remains in possession and control of its assets and business affairs while reorganizing under chapter 11 unless and until the debtor’s plan of reorganization is confirmed, or the debtor’s chapter 11 case is dismissed, converted to chapter 7, or a chapter 11 trustee is appointed. 

Unlike a chapter 11, in which the debtor ordinarily remains in control of its assets while attempting to reorganize through a plan of reorganization, a chapter 7 bankruptcy is a liquidation proceeding in which a chapter 7 bankruptcy trustee is appointed and assumes control of and administers all of the debtor’s non-exempt assets for the benefit of the debtor’s creditors. Thus, a chapter 7 is a liquidation proceeding pursuant to which the debtor relinquishes possession and control of all non-exempt; whereas, a chapter 11 proceeding is a reorganization proceeding in which the debtor as the debtor in possession typically is entitled to stay in possession and control of its assets while attempting to restructure its financial affairs.

The Bankruptcy Code places the debtor in possession in the role of a fiduciary, confers to the debtor in possession the rights and powers of a chapter 11 trustee, and requires that the debtor in possession perform most of the duties of the trustee, including accounting for the debtor’s assets, examining and objecting to claims, filing all required reports, and preparing and filing tax returns. The debtor in possession also possesses many of the other powers and duties of the chapter 11 trustee, including, with court approval, to employ counsel, accountants, brokers, appraisers and other professionals to assist in the bankruptcy case. The debtor in possession is technically a distinct and separate entity from the debtor, with specific powers and duties as noted above.

Once filings have been completed and requirements are met, the distribution process begins.  The priority scheme in bankruptcy dictates the order in which claims get paid. The priority scheme in a chapter 11 bankruptcy is the same as it is for other chapters. In general, secured creditors are paid first to the extent of their allowed secured claim. Next comes payment of unsecured claims. Among unsecured creditors, in general and subject to several infrequent exceptions, administrative expenses (the actual, necessary costs and expenses of preserving the bankruptcy estate) are paid first, followed by certain claims for wages and employee benefits, followed by certain tax claims, followed by general unsecured claims. Equity holders have an “interest” rather than a claim and are paid, if at all, only after payment of all general unsecured claims. The most senior priority class gets paid in full before the next priority class receives any payment.  To the extent a class cannot be paid in full, class members are paid pro rata.

The debtor & creditor rights attorneys at Structure Law Group, LLP can assist with any legal matters involving bankruptcy in a business.  Bankruptcy can be complex when it comes to business interests and with the assistance of an experienced California business attorney you can understand your rights.  Call us at 408-441-7500 or fill out our online contact form today.