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The need for Chapter 11 bankruptcy can arise in many different ways. While overwhelming debt is often the main cause, businesses and individuals facing pending litigation in multiple jurisdictions may also benefit from Chapter 11.
If you are a business or individual facing the burden and high costs of litigation in multiple state or federal courts, Chapter 11 bankruptcy can help. For most common types of civil litigation, including liability claims, personal injury cases, and business disputes, the eligible cases are automatically stayed, are then consolidated into the bankruptcy case, and may be discharged or resolved when the bankruptcy court approves the Reorganization Plan, providing a significant benefit for the debtor.
This advantage for pending litigation is due to the automatic stay that is effective as soon as a Chapter 11 bankruptcy petition is filed. Whether the debtor is a business, individual, or small business, the automatic stay stops creditor and claimant actions against the debtor as soon as the petition is filed. The automatic stay provides a wall of protection around the business or individual, enabling them to stabilize and reorganize their finances without the constant threat of creditor harassment and court actions. As such, the burden of the multiple litigation is immediately mitigated.
There are limits to the automatic stay protection for litigation. While it does cover most types of civil litigation, it does not cover criminal cases, certain domestic relations matters (like custody, divorce, and support), and proceedings related to a driver’s, professional, or occupational license. Our previous blog post titled Is There an Automatic Stay on Debt Collection in Chapter 11 Bankruptcy? provides a detailed explanation of the automatic stay, including the types of litigation that it usually covers — and types it doesn’t. So, although many kinds of litigation claims will be discharged in a Chapter 11 bankruptcy, some court actions may continue after a Chapter 11 proceeding.
In any bankruptcy proceeding, a creditor can file a motion asking the bankruptcy judge to allow a state court case to continue. Bankruptcy courts approve these motions in limited circumstances. The best way to determine how your own litigation situation will be affected by Chapter 11 is to talk to an experienced Chapter 11 lawyer.
As soon as a debtor files bankruptcy, the automatic stay puts a hold on all pending or new litigation against the debtor. As the process unfolds, the debtor, through its lawyer, negotiates the terms of a Reorganization Plan with the creditors’ committee or just creditors generally whose approval for the plan can help in it being approved by the court. (In some situations, particularly in Subchapter V cases, creditor approval is not even necessary.)
The negotiations cover a wide range of claims, including pending litigation, to arrive at agreeable terms for each case. In some cases, the resolution may involve the discharge of both current claims and future claims, and claims of third parties who did not file bankruptcy from related claims.
A significant benefit of a chapter 11 filing is that all pending litigation against the debtor, even if it is in multiple courts and/or jurisdictions, is heard in one central forum, the bankruptcy court where the debtor filed its petition.
The best way to start exploring the possibility of Chapter 11 bankruptcy and whether filing a bankruptcy petition may help ease or eliminate your burden of civil litigation is by talking to an experienced Chapter 11 bankruptcy lawyer. Navigating the complex laws and processes requires representation by a highly skilled business bankruptcy lawyer. Aaron Wernick, the founder of Wernick Law, has more than 20 years of complex bankruptcy experience. He is certified in business and consumer bankruptcy law from the American Board of Certification, and is recognized by Chambers and Partners for bankruptcy and restructuring in the Florida Spotlight Guide for 2024.
Aaron has built an exceptional record of success in Chapter 11 bankruptcy cases, securing reorganization plan confirmation in approximately 95% of his cases. Aaron excels in Chapter 11 debtor representation due to his extensive experience and finely honed business bankruptcy skills and knowledge. His keen negotiating and problem-solving skills and his unwavering dedication to protecting his client’s interests enable Aaron to guide difficult, challenging cases to the finish line by advocating for the client, while strategically and efficiently pursuing solutions that lead to resolution of disagreements.
A Chapter 11 case may arise from many different circumstances, some of which involve other legal proceedings. In his Chapter 11 practice, Aaron Wernick handles many related legal matters, some of which may technically not be litigation, as part of a reorganization bankruptcy case, such as:
Aaron also works with his clients post-bankruptcy in the area of asset protection, so that the value preserved or enhanced through the restructuring is protected going forward.
Chapter 11 bankruptcy lawyer Aaron Wernick welcomes businesses, small businesses, individuals, and referring professionals wishing to learn more about Wernick Law’s Chapter 11 practice — including the impact on pending litigation — to schedule a consultation by calling 561-287-3050 or using the online contact form. Based in Boca Raton, Wernick Law serves clients in South Florida (including West Palm Beach, Broward County, and Miami), Southwestern Florida (including Naples and Fort Myers), Tampa, Orlando, Jacksonville, and elsewhere in the state.
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