As Jacksonville construction attorneys with over 100 years of combined experience devoted to the construction industry, we know that federal bankruptcy laws are among the most challenging of legal topics for our clients to navigate through. As we discussed in the first section of this six-part article, there are typically two ways that a debtor files for bankruptcy. The entity either liquidates their assets or reorganizes them through an authorized plan through the federal court system. In this article, we will explain both of these processes.
Chapter 7 Bankruptcy
Bankruptcy filings commence when the debtor files a petition. In the case of Chapter 7 bankruptcy, the debtor yields assets over to the bankruptcy trustee who in turn liquidates those assets into cash and distributes the assets to the creditors. The distribution of these assets is performed by a “priority list” that begins with “secured creditors” (banks, money lenders, lien holders) and eventually compensates the “unsecured creditors” (contractors, suppliers, and other vendors). Typically, unsecured creditors do not obtain full payment through this process.
Chapter 11 Bankruptcy
While Chapter 7 bankruptcy is a way debtors liquidate their assets, Chapter 11 bankruptcy is when a business reorganizes their debt. In this process, the debtor can continue to manage their business under an authorized plan from the bankruptcy court while they pay back the creditors. If a plan is not authorized by the bankruptcy court, the case may be converted to a Chapter 7 filing. Ideally, companies want to file for Chapter 11 bankruptcy to have more time to improve their finances and repay their creditors while still maintaining control of their business. Unfortunately, this usually doesn’t happen and the case is often reassigned to Chapter 7.
If you are a construction industry professional that is dealing with a bankrupt entity, you want an attorney with intimate experience representing clients in bankruptcy cases. You also want an attorney who is knowledgeable in all of the complex aspects of bankruptcy law and understands the construction industry. At Cotney Construction Law, our experienced Jacksonville construction attorneys can provide you with the right legal counsel for your bankruptcy case.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.