What is Chapter 11 bankruptcy?
When a business files for Chapter 11 bankruptcy, the business is put on a payment plan to repay debts to their creditors over a specified period of time. Just what that plan is, and the amount of money that will be paid, is negotiated in bankruptcy court with your creditors. The payment plan is supervised and enforced by the United States Bankruptcy Trustee. Chapter 11 bankruptcy is a good option for many business owners because it allows you to continue operating your business while straightening out your financial circumstances. Owners do not lose control of their business, and current management can remain in place. The Financial Law Group, P.C., also assists business owners with Chapter 7 bankruptcy filings, in which all debts are discharged and all assets related to the business are liquidated. Chapter 7 bankruptcy for business is typically the worst-case-scenario for business owners.
It’s a voluntary step companies take to reduce or eliminate their debt. “Chapter 11” refers to a section of the U.S. Bankruptcy Code. Are they out of business? No, that would be a Chapter 7 filing, or liquidation. In Chapter 11, companies continue to operate. Their stocks and bonds continue to trade. But bondholders stop receiving interest and principal payments, stockholders stop receiving dividends and debt payments are suspended to give companies time to develop a reorganization plan. That’s why you often hear about a company operating “under the protection” of Chapter 11. What happens after a company files for Chapter 11? A trustee appoints committees to represent creditors, bondholders and shareholders. The company works with the committees to develop a plan to get out of debt. The plan must be accepted by all groups and approved by the court, but a bankruptcy judge can impose a plan over the objections of one or more groups. Are all creditors treated equally? No. Secured creditor
Chapter 11 bankruptcy is a type of bankruptcy that allows businesses and individuals to restructure their debt without liquidating their assets. Generally, Chapter 11 bankruptcy is used by small businesses, partnerships, corporations or other such business entities to allow them to reorganize their operations and continue operating throughout the bankruptcy process. Chapter 11 may be filed by individuals with a large amount of debt; however, it is a very complicated and expensive process that is not conducive to the financial situation of many individuals. Individuals seeking bankruptcy without liquidation often file under Chapter 13 (see What is Chapter 13 Bankruptcy?). When facing financial difficulties, a qualified bankruptcy attorney should be able to advise you about the different options you have for dealing with debt.
Video Transcript What Is Chapter 11 Bankruptcy? You are considering filing bankruptcy and you have heard of Chapter 11. Should I file a Chapter 11? My name is Andy Forman and I’m a Consumer and Business Bankruptcy Lawyer in Tampa, Florida and I help give advice to people day in and day out about which bankruptcy they should file. Chapter 11 is typically a corporate reorganization. It can be used by individuals whose debt exceeds the allowable amounts of Chapter 13 but it is usually not very effective for individuals for a host of complex reasons. In Chapter 11 the corporation identifies the creditors and groups them in what are called classes. The Chapter 11 debtor files a disclosure statement which identifies the history of the debtor and provides financial information and it also provides for a plan of reorganization and in that plan there are the classes that we have identified and each class is treated differently. Some classes are taxes, secured creditors and priority claims.
Chapter 11 is typically used for business bankruptcies and restructuring. It is not commonly used by individual consumers since it is far more complex and expensive to pursue. It allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court and its appointees. (Reviewed 11.9.
