Chapter 11 Bankruptcy in New Jersey

Chapter 11 bankruptcy in New Jersey is normally utilized by businesses, sole proprietors and partnerships seeking to restructure their debts.  Certain individuals with large amounts of secured and unsecured debt can also use the provisions of a Chapter 11 bankruptcy in New Jersey and other jurisdictions.

Under a NJ Chapter 11 bankruptcy, a debtor restructures its finances with a reorganization plan which must be approved by the New Jersey Bankruptcy Court.  The reorganization can reduce obligations and/or modify financing terms.  By reorganizing the debt, Chapter 11 helps debtors continue operations, balance its income and expenses, and attempt to regain profitability.  Debtors can also liquidate some or all of its assets to pay down debt, lower expenses, downsize operations, or alleviate cash flow concerns.

 

What is a New Jersey Chapter 11 Bankruptcy?

Also called a “reorganization” bankruptcy, a NJ Chapter 11 filing is named after Chapter 11 of the US Bankruptcy Code and is used by corporations generally to gain the time to restructure their debts.  Chapter 11 is the most complex of all bankruptcy cases and generally is the most expensive.

A New Jersey Chapter 11 Bankruptcy filing begins with the filing of a petition with the bankruptcy court in New Jersey.  The petition may be voluntary by the debtor but also may be forced upon the debtor when the petition is filed by creditors that meet certain requirements under the Code.

 

What Happens During a Chapter 11 Bankruptcy in New Jersey?

Under a NJ Chapter 11 Bankruptcy, the court helps businesses (generally) New Jersey Chapter 11 Bankruptcyrestructure debts and obligations.  In most cases, the business continues to operate as before but it is unable to make certain business decisions without court approval.  The court also controls decisions regarding paying attorneys and entering into new contracts with vendors or labor unions.

The debtor usually has the first chance to propose a plan.  The plan may very well include renegotiating debts, labor layoffs, reducing operating expenses and downsizing of general business operations.  In other plans, businesses liquidate some or all business assets.  Generally, any reorganization plan under Chapter 11 must give creditor interests top priority.

The goal of the reorganization plan is to get the creditors paid while saving the business venture.  If the plan is possible, reasonable, and fair to all parties, the courts will generally accept it.

 

The Small Business Reorganization Act of 2019 and New Developments

The Small Business Reorganization Act of 2019 set forth a new subchapter V to Chapter 11 designed to make bankruptcy easier for small businesses.  Small businesses are defined by the section as entities with LESS than approximately $2,700,000 in debt and meet other criteria.  Subchapter V is designed to streamline the process by setting shorter filing deadlines, setting the stage for more flexibility in negotiations between the debtor and creditors and appointing a private trustee as a type of mediator to help the process along.

Recently, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, raised the Chapter 11 subchapter V debt limit to $7,500,000. The change applies to bankruptcies filed after the CARES Act was enacted (March 2020) and sunsets one year later.

 

Chapter 11 Bankruptcy in New Jersey Conclusions

As stated above, Chapter 11 Bankruptcy in New Jersey is the most complex of the bankruptcy proceedings and as such, the most expensive.  Because of this, business organizations should consult NJ Chapter 11 bankruptcy attorneys before a decision to file is made.  Consulting a NJ Chapter 11 bankruptcy lawyer will lay out all possible alternatives to a Chapter 11 filing.  Each alternative can then be analyzed and the proper course of action chosen from a position of clarity.

If you or your business is considering Chapter 11 bankruptcy in New Jersey, give us a call for a consult.  We specialize in NJ bankruptcy filing and can help you understand your options.  Give us a call.  We are here to help.  We are at your service.