To Qualify For A Chapter 11 Reorganization NJ Businesses Need To Comply To Strict Criteria

By Sharron Cantu


Companies and individuals often find themselves in a situation where they simply cannot manage their finances any longer. Their debts have reached a stage where they keep falling further and further behind, exposing themselves to legal action. In such cases an application for bankruptcy is often made. The laws governing bankruptcy are strict, however. For example, when seeking a chapter 11 reorganization NJ applicants need to satisfy the courts that they comply to numerous criteria before the application is approved.

There are different sections of the bankruptcy law. Section eleven is much different from the better known section seven. In the latter case the applicant will have to forfeit all assets. If the applicant is a business all trading is stopped and in most cases the assets are sold to pay the debts of the applicant. The court appoints a trustee to handle the matter and the interests of the creditors are deemed to be the only important consideration.

The terms of section eleven allows the applicant to remain in control of the business. However, this control is maintained under strict supervision of the court. The bankruptcy courts will only entertain this type of application if there is a reasonable chance that the business will survive and become able to honor its financial obligations. Corporates use this type of application when they experience immense financial pressure.

This section can only be applied to applicants that can convince the courts that they are able to recover if given the chance to restructure their businesses and if they are protected against their creditors while to process is completed. In such cases the applicant is allowed to continue with business activities and they may apply for finance and enter into contracts with new suppliers and clients.

There are other benefits afforded to applicants. They may not be sued by their creditors as long as they remain under administration. They are also protected against legal action from their suppliers and all other stakeholders. Creditors that are of the opinion that their own survival depends upon collecting debts from the applicant have no choice other than to approach the court.

Applicants are not left to their own devices to implement changes and to reorganize their businesses. They have to provide the court with comprehensive plans before they are allowed to proceed. In some cases the court may order the plans to be changed or even done again from scratch. Creditors are also allowed to study the plans and if they are of the opinion that the plans are unrealistic they may petition the court.

Critics say that this law allows applicants to dodge their responsibilities. They say that contractors and clients of the applicant are sidelined and that their needs are not taken into account. Many smaller companies therefore go under and many people lose their jobs whilst a major debtor is enjoying the protection of the federal courts.

It makes sense that everything possible is done to protect organizations that provide employment to large numbers of people. Certain industries perform key functions and manufacture strategically important products. Such organizations must be protected when they experience financial crises.




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