Facing Chapter 11 bankruptcy can feel overwhelming, especially when you’re bombarded with legal jargon and unfamiliar terms. You may be grappling with uncertainty, worried about how your business will survive, or anxious about navigating the court process.
Understanding key terms—like “automatic stay” or “debtor-in-possession”—can ease some of this stress and help you regain a sense of control. This guide breaks down essential concepts to help you feel more informed and prepared for the journey ahead.
In this article, you can discover…
An automatic stay is a legal freeze on all collection activity the moment you file for bankruptcy. Under 11 U.S. Code § 362(c), this stay prevents creditors from trying to collect debts, including making calls or pursuing legal actions such as lawsuits, repossessions, or foreclosures.
Of course, creditors might not immediately know about the bankruptcy filing, so if they contact you, simply inform them that you’re in bankruptcy, and they are required to stop contacting you.
Furthermore, you do not need to take any additional steps beyond filing for bankruptcy for an automatic stay to take effect – it provides immediate relief by halting creditors as soon as your case is filed.
Understanding the difference between secured and unsecured debt is key. These terms describe what rights creditors have and how they can try to collect what’s owed.
In short, secured debt gives the creditor a legal right to take something you own—whether it’s business or personal property—if you default on the debt.
A common example of this is a mortgage. If you own real estate, like a corporate building, a house, or an apartment complex, and stop paying the mortgage, the lender can take away the property. Car loans work the same way—if you fall behind on payments, the lender can repossess the vehicle.
In the corporate world, secured debt can get a bit more complicated as you’re more likely to have signed a security agreement that covers more than just one piece of property. For instance, a creditor could have a claim on all of your business’s income or assets. So, if you own a restaurant, this could look like equipment, inventory, or even kitchen supplies.
Sometimes, these agreements can even extend to your personal property. This happens when business owners sign personal guarantees, which could put their personal home or bank account at risk if the business can’t pay.
In the case of unsecured debt, the creditor doesn’t have a direct claim on your property. If you don’t pay, they can’t just take something from you—they’d have to sue you to get the money.
Beyond this, unsecured debt comes in two types: general unsecured debt and priority unsecured debt.
To sum it up, secured debt means a creditor has a claim on your property if you don’t pay, while unsecured debt means creditors can only seek repayment through the court system.
These are two important concepts in bankruptcy, so let’s break them down…
As a debtor-in-possession, you remain in control of your business or assets during the bankruptcy process while maintaining a duty to act responsibly and in the best interest of all parties.
Meanwhile, when a trustee is involved, their role can range from overseeing the case to actively working with you and creditors to ensure a fair and reasonable reorganization plan.
When someone files for Chapter 11 bankruptcy—whether it’s an individual or a corporation—they often continue running their business or managing their assets during the bankruptcy process.
This person or business is referred to as a “debtor-in-possession,” meaning they remain in control of their property, operations, and finances while the case is ongoing.
For example, if you’re a business owner filing for Chapter 11, you don’t automatically lose control of your business. Instead, you continue to manage things like day-to-day operations, payroll, and other financial matters.
However, as a debtor-in-possession, you take on a special responsibility, acting in the best interest of the business and its creditors—not just yourself.
In this role, you are somewhat like a trustee. This higher duty is meant to protect the assets of the business and ensure that everything is done according to the bankruptcy laws.
While you’re still in control, your decisions must consider both the future of the business and what’s fair for creditors, following the rules outlined in the bankruptcy code.
Attorney Penny Bach is a seasoned lawyer based in Illinois who has helped countless clients just like you navigate the intricacies of bankruptcy law. With nearly two decades of experience in Chapter 11 cases, she is prepared to assist you in restructuring your financial situation so that you can regain control and focus on what truly matters.
Still have questions? Ready to get started? Contact Bach Law Offices, Inc. today to schedule an initial consultation.
Sometimes, a trustee is appointed to take over control of the bankruptcy estate. This can happen in a few different ways, which is why there are variations in the role of a trustee…
This person isn’t like a judge, but their job is to make sure that the bankruptcy case follows the rules, oversee whether creditors are treated fairly, and ensure that the debtor is following the bankruptcy code.
The U.S. Trustee doesn’t run your business or take over your assets, but they play a crucial role in monitoring the case and ensuring everything stays on track.
Subchapter 5 trustees review your financial records, speak with both creditors and you as the debtor, and help make sure your reorganization plan is realistic and workable. Their main goal is to help everyone agree on a repayment plan that makes sense.
In any case, this committee works to make sure the repayment plan is fair to creditors and aims to smooth the process between the debtor and creditors.
In summary, the key difference between a “debtor-in-possession” and a “trustee” lies in whether you, as the debtor, keep control or whether someone else is brought in to help manage or oversee the process.
A Chapter 11 “Reorganization Plan” is a roadmap for how you or your business can restructure your financial situation—whether your goal is to keep your business running or address personal debt while still paying creditors.
But what exactly does the plan involve, and how does it work? At its core, a Chapter 11 plan lays out how the debtor—the person or business filing for bankruptcy—plans to repay their creditors and manage their assets going forward. Depending on the type of Chapter 11 case, the plan can look a little different.
For small businesses filing under Subchapter V, the process tends to be pretty streamlined. In more traditional Chapter 11 cases, on the other hand, you’ll usually need two key documents: the reorganization plan itself and a disclosure statement.
The reorganization plan can either be about restructuring your debts to keep the business running, or it can be a liquidation plan where assets are sold to pay creditors. While it’s understandable that liquidation can be unsettling, even Chapter 11 liquidation rules allow you to maintain more control compared to Chapter 7, where a trustee takes over.
At the end of the day, the primary goal of the plan is to explain to creditors, the court, and anyone involved how repayment will happen, so everyone knows what to expect.
Everything the debtor owns, owes, or earns becomes part of what’s called the bankruptcy estate. This includes assets, cash flow, expenses, and debts.
The reorganization plan brings all of this into one place so creditors, the court, and anyone with a stake in the case can see what the debtor is proposing in terms of repayment.
The plan answers questions like: How much will creditors be paid? When can they expect payments? Will they be fully repaid or only a portion?
In a Chapter 11 plan, creditors are divided into different classes based on the type of debt they hold.
For instance, a landlord with the power to evict a tenant might need to be paid in full to avoid eviction, even if other unsecured creditors receive only partial repayment.
There’s no way to guarantee your Chapter 11 plan will be approved, but the best way to improve your chances is by working closely with your creditors from day one.
This is known as a “cram-down,” where the court forces creditors to accept the plan if it’s fair, reasonable, and follows the bankruptcy rules.
To make this happen, you’ll need to show that all available cash is going to your creditors and that your plan sticks to the bankruptcy code.
Not every creditor needs to agree, but you do need the majority on board, so it’s important to build that support as early as possible.
By talking to them up front, figuring out what they’ll accept, and negotiating terms ahead of time, you’ll have a much better chance of getting the plan approved when it goes to a vote.
At our firm, we focus on reaching out to creditors as soon as we can. We want to make sure your plan aligns with what they expect, so by the time it’s filed, we already know where we stand. Sometimes, creditors don’t respond until after we’ve filed the first draft, but we keep working with them to win their approval – and we’re here to help guide you through every step of the way.
When you file for Chapter 11, you take the first step in an ongoing, hands-on commitment. Chapter 11 filings are not a matter of just handing over paperwork and waiting for things to happen – you’ll need to be involved throughout the entire process, which could last months or even years.
Every month, you’ll need to submit financial reports, update your business accounts, and obtain court approval for many financial transactions– and your finances will be closely monitored at every step of the way. In addition to this…
If you’re feeling overwhelmed right now, you’re not alone. Many people walk away from their first consultation with a “deer-in-the-headlights” look – simply because there’s so much to take in.
Whether you’re just starting your business or you’ve been managing it for years, we’re here to help you see the bigger picture: that staying on top of these requirements isn’t just about following the rules; it’s about keeping the process moving smoothly and avoiding unnecessary problems.
That’s why we prioritize staying in close contact with you and going over the details as often as needed, so you feel confident and prepared at every turn.
Still Have Questions? Ready To Get Started?
For more information on Chapter 11 Bankruptcy In Illinois, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (847) 440-5998 today.
Attorney Penny Bach is a seasoned lawyer based in Illinois who has helped countless clients just like you navigate the intricacies of bankruptcy law. With nearly two decades of experience in Chapter 11 cases, she is prepared to assist you in restructuring your financial situation so that you can regain control and focus on what truly matters.
Still have questions? Ready to get started? Contact Bach Law Offices, Inc. today to schedule an initial consultation.
