Chapter 11 Bankruptcy Attorney in Los Angeles | Totaro & Shanahan

What is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is a court-supervised business reorganization used by Los Angeles and Orange County companies, real-estate holding LLCs, and high-asset individuals to restructure debt while continuing to operate. Our experienced attorneys serve clients throughout California, Texas, and Illinois, using Chapter 11 to renegotiate terms with creditors, reduce principal balances, and extend payment periods under court protection.

While often associated with large corporations, Chapter 11 is also available to individuals with substantial assets or debts that exceed the limits for Chapter 13. For businesses, it provides a way to address financial challenges without shutting down operations. See famous Chapter 11 cases that led to successful recoveries.

California Chapter 11 cases are typically filed in the United States Bankruptcy Court for the Central District of California (Los Angeles, Santa Ana, Riverside, and Woodland Hills divisions), the Northern District (San Francisco, Oakland, San Jose), or the Southern District (San Diego). Common filers include closely held operating companies in Los Angeles and Orange County, professional practices, real-estate holding LLCs with multiple investment properties, restaurant and hospitality groups, and high-asset individuals with personal guarantees on commercial debt. Whatever the profile, the goal is the same: use the breathing room of the automatic stay to negotiate sustainable terms with secured lenders, taxing authorities, and unsecured creditors under court supervision.

Key Benefits

• Continue business operations as a "debtor in possession"
• Automatic stay protection from creditor actions
• Ability to reject unfavorable contracts and leases
• Opportunity to restructure secured and unsecured debt
• Potential to sell assets free and clear of liens
• Time to develop a comprehensive reorganization plan
• Protection for critical vendors and ongoing business relationships

The Chapter 11 Process

1. Pre-filing analysis: We conduct a thorough assessment of your financial situation, assets, liabilities, and business viability.
2. File petition: We prepare and file your voluntary petition, schedules, statement of financial affairs, and other required documents.
3. First day motions: For businesses, we file emergency motions to maintain critical operations (payroll, utilities, use of cash collateral, etc.).
4. Debtor in possession: You maintain control of your business and assets as a fiduciary for creditors, subject to court oversight.
5. Creditor's committee: In all Chapter 11 cases, except for small business Sub-V cases, the U.S. Trustee will send a notice to creditors asking whether they wish to form a Creditors' Committee. If there is no response within a brief period, no committee will be formed. If a committee is established, the Debtor is responsible for covering the Committee's attorney fees.
6. Exclusivity period: You have an exclusive period to propose a reorganization plan (typically 120 days, extendable to 18 months).
7. Disclosure statement: You must provide adequate information for creditors to evaluate your reorganization plan.
8. Plan confirmation: After creditor voting, the court confirms your plan if it meets legal requirements.
9. Plan implementation: You execute the terms of the confirmed plan, which may take years to complete.

Chapter 11 vs. Subchapter V vs. Chapter 13

Choosing the right chapter depends on whether you're filing as an individual or a business entity, the size and composition of your debt, and whether you intend to keep operating. Chapter 13 is limited to individuals (including sole proprietors) whose noncontingent, liquidated secured and unsecured debts fall below the statutory caps adjusted every three years; it offers a streamlined three-to-five-year repayment plan and is generally less expensive than Chapter 11.

Subchapter V of Chapter 11 was created by the Small Business Reorganization Act of 2019 to give small operating businesses (and individuals engaged in business) a faster, cheaper path to reorganization. It eliminates the disclosure-statement requirement, eliminates the creditors' committee in most cases, allows owners to retain equity without satisfying the absolute-priority rule, and imposes a 90-day deadline to file a plan. A standing Subchapter V trustee is appointed to facilitate consensual confirmation. The trade-off is the eligibility cap on aggregate noncontingent, liquidated debt — when you exceed it, you're back in standard Chapter 11.

Standard (non-Sub-V) Chapter 11 is the right tool for larger operating companies, real-estate portfolios with complex secured debt, and individual debtors whose obligations exceed Chapter 13 limits. It is more procedurally demanding and more expensive, but it offers maximum flexibility — including §363 sales free and clear of liens, rejection of burdensome leases, and cramdown of secured claims at fair market value.

Common Chapter 11 Challenges in California

California Chapter 11 cases tend to surface a recognizable set of issues. Cash-collateral disputes are nearly universal at the start of any operating-business case: the debtor needs to use cash that secured lenders claim as their collateral, and a stipulated cash-collateral order with adequate-protection payments and a budget is usually negotiated within the first two weeks. Single-asset real-estate cases under §101(51B) come with their own accelerated timeline — the debtor must file a confirmable plan or begin paying interest at the non-default contract rate within 90 days of the order for relief.

Real-estate investors with multiple investment properties often pursue cramdown of underwater first or second mortgages on non-residential or non-primary-residence properties under §1129(b)(2)(A), bifurcating the secured claim at fair market value and treating the deficiency as unsecured. California debtors also routinely contend with priority claims from the Franchise Tax Board (FTB), the Employment Development Department (EDD), and the California Department of Tax and Fee Administration (CDTFA). These agencies are sophisticated repeat players in bankruptcy court, and their claims must be addressed correctly under §507 to avoid plan-confirmation problems.

What to Expect in the First 30 Days

For an operating-business filing, the first 30 days are intense. On day one, we file the petition along with first-day motions to authorize use of cash collateral, payment of pre-petition wages, continued use of existing bank accounts (or opening of debtor-in-possession accounts as required by U.S. Trustee Guidelines), and continued utility service under §366. Within a few weeks, the U.S. Trustee schedules the Initial Debtor Interview (IDI), which covers operations, insurance, tax compliance, and reporting requirements. Monthly Operating Reports begin almost immediately and continue throughout the case. The §341(a) meeting of creditors typically occurs within 21 to 40 days of filing. Setting realistic expectations about the workload of these first weeks is one of the things we focus on at the consultation.

Frequently Asked Questions