Seven Concepts to Make Small Chapter 11 Cases Work
By Steven R . Fox The Fox Law Corporation Encino , California
Too many attorneys who handle chapter 11 cases do not understand them . They understand the statutes but chapter 11 exists because to address nonlegal problems , e . g ., financial problems , accounting problems , life problems , family problems . Chapter 11 ’ s statutes are only a process ; they are not the problems nor are they a cure . This article offers seven Concepts to help you handle a chapter 11 case . These Concepts can make your job easier and more successful .
The Seven Concepts .
They apply to any chapter 11 case , individual or business .
1 . The Small , Fragile Case . Most chapter 11 cases ( operating business or husband and wife cases ) are small , fragile and fail easily . These may be oversized chapter 13 cases with an underwater family home and a small business . Management is flawed and , unlike larger cases , cannot be replaced .
2 . Know Your End Game Before the Game Starts . In chapter 11 , the end game is to get disgruntled creditors to vote to accept a plan that will pay them little and over time . Before filing the petition , know ( 1 ) how claims will be classified , ( 2 ) the likely distribution to creditors ( 3 ) and who may vote to accept the plan . Without votes , the plan and the case will fail .
3 . Genesis of the Case - the Problems . Identify the problems which lead to the filing and explain these problems to the Court to build credibility .
4 . Fixing the Problems . You , the attorney , have to push and encourage debtors to do something really hard - fix the problems . Too many people are hard wired to not fix problems .
5 . Accepting Responsibility . You must teach the debtors to accept responsibility for the problems that they created . No one else is responsible . They cannot blame others .
6 . Following Rules . Make sure the debtors stay inside the rules of chapter 11 even when the rules make no sense . Many debtors are risk-takers . Following rules can be hard . However , following rules helps a court find that a debtor ’ s plan is feasible .
7 . The Narrative . Control the narrative of the case , what happened , why and what is being done to fix the problems . If you lose control of the narrative to a creditor ’ s alternative narrative , then confirming a plan becomes that much harder .
Typical Facts in a Small Chapter 11 Case
Our debtors , the Smiths , are homeowners . The secured debt against the home exceeds the § 109 ( g ) debt ceiling . The husband operates a small construction business , a d / b / a , with two employees . The business generates $ 600,000 in annual gross revenues , its annual costs of goods sold (“ COGS ”) average $ 480,000 ( or 80 %), overhead expenses are $ 150,000 ( 25 %) leading to an annual loss of $ 50,000 . The wife has an outside job where she nets $ 100,000 annually . Half of her income goes to cover business bills . Between the two sources of income , the family has $ 50,000 to live on so cash flow is always tight . They have three children . He graduated high school ; she has some college education .
Their basic assets are the family home on a large lot valued at $ 1.2 million more or less , the construction business with its losses , and , some vehicles which are owned free and clear . There are no savings
44 CONSUMER BANKRUPTCY JOURNAL Spring 2018 National Association of Consumer Bankruptcy Attorneys