Artistic Framing, a business with $120,000 of unsecured debt, needs to file for bankruptcy, but wants to continue in business. Discuss what chapter of the Bankruptcy Code should be used, and discuss the effect of the 2005 amendment to the Code on the proceedings

Answer 1

If Artistic wants to continue in business, it should file under a reorganization chapter (Chapters 11 or 13) rather than a liquidation chapter (Chapter 7). Although its purpose is to rehabilitate the debtor through reorganization, Chapter 13 is available only to individual debtors with a regular source of income. It is not available to businesses. Chapter 11 is the appropriate chapter for Artistic. Artistic becomes the debtor in possession and, in effect, serves as trustee. A 2005 amendment to the Code includes provisions to speed up the process of reorganization for businesses with less than $2 million in debt. After the order for relief, the debtor has the exclusive right to file a plan of reorganization for 180 days. Both a plan and a disclosure statement must be filed within 300 days. The court must confirm or reject the plan within 45 days after its filing. If the deadlines are not met, the case can be dismissed or changed to a Chapter 7 proceeding.