After Filing Chapter 11 Bankruptcy – Florida
Dos and Don’ts After Filing Bankruptcy Guidelines
As a business owner, you have successfully filed Chapter 11 Bankruptcy to reorganize your debts while continuing to operate your business. Congratulations! This is a big step in the process of helping your business have a successful financial future.
At MHMLPA, we know that now you can take that deep breath and mentally focus on the short term and long-term business decisions. Our goal for all our business clients is to provide as much information and guidance during your bankruptcy matter. Your next steps are just as important as filing your case. Below is a list of Dos and Don’ts that hopefully will provide you more insight as a business owner in understanding the court rules while in bankruptcy. When in doubt always consult with your legal counsel at Michael H. Moody Law, P.A
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Do NOT Pay Pre-Petition Debts Without Court Approval
After your bankruptcy has been filed the pre-petition debts are frozen and the automatic stay goes into effect. Payments to old creditors generally require court authorization. This means, you should NOT pay vendor or supplier invoices incurred before filing, mortgage payments on real property, credit card balances, or pre-petition loans. Even when you make payments with good intentions, the payments can be challenged, clawed back, or expose the business to liability. Always consult counsel before paying for anything tied to pre-bankruptcy obligations.
Do NOT make “out of the ordinary” business decision without approval
While in bankruptcy the court requires certain approvals. You should NOT sell real estate or major assets, enter significant new contracts, restructure ownership or affiliate relationships, and/or change executive compensation or insider arrangements. If an action falls outside of your normal course of business, assume approval is required and seek guidance from your counsel.
Do continue operating in the ordinary course of business
The benefit of filing Chapter 11 Bankruptcy is that you can continue to operate your business. You generally can continue to pay post-petition employee wages, purchase inventory and supplies, fulfill customer orders, maintain insurance and utilities, and pay vendors for goods and services provided after filing.
Do keep clean, detailed financial records
While in Chapter 11 Bankruptcy, Debtor’s responsibility to be transparent and accurate with the court is critical for a successful plan to be confirmed. As the business owner, you should maintain detailed records of all creditor communications, track post-petition income and expenses carefully, preserve copies of invoices, contracts, and payment records, forward creditor demands to counsel instead of responding directly. Working with your CPA will be vital in this process so that they can help file the monthly operating reports with the court and trustee. Sample Form 425C
DO Understand Cash Management Rules
In bankruptcy not all money is treated the same. Use post-petition revenue only for authorized expenses, follow any cash collateral orders if secured creditors are involved, segregate funds when required, do NOT assume access to cash without confirming restrictions.
Do stay engaged and communicate with your legal team
With Chapter 11 Bankruptcy specifically, Chapter 11 SubV, the timeline is quick and requires the reorganization plan to be filed within 90 days. Your Chapter 11 success depends on prompt responses, strategic planning, and asking counsel before any steps are made as the business owner. When Debtor’s in Chapter 11 Bankruptcy fails to abide by the bankruptcy rules is when cases are dismissed, chapter 7 liquidation conversion, avoidance of transactions, and personal liability (in extreme cases).
Chapter 11 Bankruptcy and Chapter 11 Subchapter V Bankruptcy are wonderfully powerful tools when used correctly. Discipline, transparency, and guidance are required from you, as the debtor. The team at Michael H. Moody Law, P.A. is eager and ready to server you as a business owner. We offer in-person free Chapter 11 consultations that typically take about an hour. We do ask that you bring as many documents as possible relating to your business and will provide a list prior to your consultation. Give us a call today to discuss how Chapter 11 bankruptcy can help you and your business run smoothy and more effectively.
Serving Florida and Delaware Businesses.