Financially distressed companies have several alternatives to Chapter 11 bankruptcy, including workouts, assignments for the benefit of creditors (ABC), and Chapter 7 liquidation. Each option has distinct processes and impacts on creditors, which are crucial for understanding how to navigate these situations effectively. In a workout, companies negotiate debt modifications directly with creditors, allowing the business to continue operating while restructuring its debt.

Chapter 11 plans often include various releases, some favoring the debtor and others benefiting nondebtor third parties. While creditors are bound by a Chapter 11 discharge, they have options regarding third-party releases. Understanding these releases is crucial for creditors to protect their interests. The Chapter 11 discharge releases the debtor from most past debts, providing a fresh start. Creditors cannot opt out of this discharge but must file a proof of claim for any pre-petition or post-petition claims before the applicable bar dates to ensure their claims are treated under the plan.

When an employer files for bankruptcy, employees often worry about the fate of their severance payments. Under Section 503(b)(1)(A) of the Bankruptcy Code, wages, salaries, and commissions for services rendered after the commencement of the bankruptcy case are treated as administrative expense claims. Additionally, Section 507(a)(4) grants priority status to wages, salaries, or commissions, including severance, earned within 180 days of the bankruptcy filing, up to a statutory cap. These provisions aim to protect employees’ compensation but apply to different time periods and have varying priority levels, which can impact severance payments differently.

When a company files for Chapter 11 bankruptcy, it must navigate numerous challenges and adapt to operating under the Bankruptcy Code. To facilitate this transition, the company typically files a series of motions known as “First-Day Motions” shortly after the bankruptcy petition is filed. These motions aim to prevent a complete shutdown of operations and reduce administrative burdens. They are addressed at a “First-Day Hearing,” which usually occurs within one or two days of the case commencement.

Subchapter V of Chapter 11 of the Bankruptcy Code offers a streamlined and cost-effective path to reorganization specifically designed for small businesses. Unlike traditional Chapter 11 cases, Subchapter V lacks certain creditor protections, which can place creditors at a disadvantage. Key differences include the absence of a creditors’ committee, no requirement for a disclosure statement, and exclusive rights for the debtor to propose a plan. These changes aim to reduce costs and expedite the process but may limit creditors’ influence over the case outcome.

When a customer files for bankruptcy, sellers may wonder if they can stop the shipment of goods. While the Bankruptcy Code does not explicitly permit this, the Uniform Commercial Code (UCC) provides guidelines under Sections 2-702, 2-703, and 2-705. Sellers can stop shipment if the buyer is insolvent or has failed to pay for the goods on time. However, they must instruct the carrier or bailee not to release the goods, and this instruction should be in writing.

Filing an involuntary bankruptcy petition is a serious legal action that creditors must approach with caution. The requirements for such filings are strictly construed and applied, meaning that any misstep can lead to significant consequences. Creditors must meet specific statutory requirements, such as having a minimum number of petitioning creditors and holding a certain amount of eligible unsecured claims. Failure to meet these requirements can result in the dismissal of the petition, potentially leading to the creditor being ordered to pay the debtor’s reasonable attorney’s fees.