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 evaluate the feasibility of the plan.
The final 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.
So the 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.
