What is a chapter 11 bankruptcy?
Chapter 11 of the bankruptcy code involves rehabilitation rather than liquidation, and usually involves a business debtor. However, individual non-business debtors may also file under Chapter 11. In a typical Chapter 11 case, no “trustee” is appointed. Rather, the debtor as “debtor in possession” or “DIP” keeps the property of the bankruptcy estate, operates the business, and creditors are paid from the debtor’s post-petition earnings. The amount a particular creditor receives is governed by a “plan” of reorganization which outlines the terms and conditions of repayment. Typically, in a Chapter 11 case, the debtor receives a discharge when its plan is confirmed, that is, when the plan is approved by the creditors and the court.
Chapter 11 is the reorganization chapter available to businesses and individuals that have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization that must be approved by the court. Chapter 11 allows flexibility in structuring the reorganization. Some plans may even release a debtor from ongoing contracts such as a commercial lease or service contract. Because of the flexibility, if you think that you are nearing financial trouble, you should consult with an attorney before you reach a financial crisis. There is no debt limit under Chapter 11. However, only a chapter 11 debtor that qualifies as a small business may request expedited treatment under chapter 11. To qualify as a small business, the debtor must be engaged in commercial or business activities, other than the ownership of real property, and the total of its secured plus unsecured debts must be less than $200,000. Due to the expense and com
When the debtor owes more than the maximum amounts that can be supported in a Chapter 13 (contact your attorney for these figures), Chapter 11 may be the answer. Chapter 11 is far more complex than any of the other bankruptcy chapters. Few debtors will need to file Chapter 11, and those who will probably know it already.
