Chapter 11 Bankruptcy or Reorganization Bankruptcy

Chapter 11 bankruptcy is a reorganization bankruptcy for businesses or individuals similar to Chapter 13 bankruptcy. While chapter 13 reorganizes individuals’ unsecured debt of less than $336,900.00 and secured debts of less than $1,010,650.00 — as of April, 1 2007 — Chapter 11 is available to any business or individuals with at least those mentioned figures.

If a business is unable to pay its creditors, the business can file for bankruptcy under either Chapter 7 or Chapter 11. In chapter 7 a trustee liquidates the business’s assets and uses the proceeds to pay off its creditors. When filing Chapter 11 however, the company may still continue to operate its business once its plan to reorganize and repay the debts has been approved.

How Chapter 11 Bankruptcy Works

Under the Chapter 11, the court may grant a bankruptcy filer a court-approved plan of reorganization after the owner has presented his or her business reorganization plan within 120 days of filing the bankruptcy case. The filer should include a written disclosure statement about their assets, liabilities, and business affairs so their creditors may be able to check the feasibility of the plan.

The last court-confirmed draft of the reorganization may include reduction only a portion of its debts or completely discharge the debts altogether.

Under the Chapter 11, the filer may also eliminate their problematic contracts and leases, recover their assets, and rescale their operations to its normal productivity. However, if the debts are more than their assets chances are the creditors whose debts were canceled will become the owner of the newly reorganized entity.

What to Expect when You File for Chapter 11

Upon the accomplishment of this bankruptcy petition, the business owner assumes the identity of ‘debtor in possession’ who keeps possession and control of all his commercial assets without the backing of an appointed case trustee while still undergoing the reorganization payment plan for 3-5 years.

In most cases, a US court trustee will not take control over the business and all its property unless the judge decides it’s necessary. The bankrupt company will remain a ‘debtor in possession’ until its reorganization payment plan is finally court-confirmed.

If the plan cannot be confirmed the court converts the case to a Chapter 7 bankruptcy, or remains a Chapter 11 bankruptcy case with an appointed trustee — if either of these actions is in the best interest of all creditors.

Overall, Chapter 11 bankruptcy mostly answers the debt issues of businesses. You may also file Chapter eleven, but individual debtors who are eligible for Chapter 7 or Chapter 13 bankruptcy rarely chose this option for the complexity and expense of the proceeding reasons.

Chapter 11 Bankruptcy or Reorganization Bankruptcy was last modified: April 8th, 2014 by Paul Sarwana