Understanding Chapter 11 Bankruptcy
Chapter 11 bankruptcy is better known as “Re-organization bankruptcy.” It’s generally used by bigger businesses that are in financial trouble. However it can also be utilized by individuals, corporations and partnerships.
Advantages of Chapter 11 Bankruptcy
The greatest advantage of Chapter 11 Bankruptcy is that it’s a reorganization, not liquidation. The corporation filing Chapter 11 is able to continue it’s operations throughout the bankruptcy proceeding. This allows the business the time it takes to reorganize with court oversight.
How Chapter 11 Bankruptcy Works
Business Concerns more often than not apply for Chapter 11 bankruptcy as a way to restructure their debt without abandoning their business organization. To do this, the business organization files a petition which includes a list of assets and indebtednesses. It also provides a careful accounting of the financial matters of the business. The business must then propose a plan for payment of its debts and have that plan acknowledged by its creditors.
The Downsides of a Chapter 11 Bankruptcy
Chapter 11 bankruptcy is definitely the most expensive corporate choice in terms of legal costs and attorneys fees. But, it’s also the most adaptable of all the bankruptcy choices. Additionally, it’s very time intense. For these reasons, it’s only recommended for larger corporations rather than individuals or small businesses. Less than 1% of all bankruptcy filings in the United States are Chapter 11 bankruptcies.
Uniqueness of Chapter 11 Bankruptcy
Chapter 11 bankruptcy is special for two reasons. First, it permits business organizations continue operating their commercial enterprise under court oversight. Second, it allows the debtor to serve as trustee. The legal term of art for this state of affairs is “debtor in possession.”
Other Bankruptcy Choices
Chapter 11 Bankruptcy isn’t the exclusive option available to a business organizations. Companies can similarly reorganize in a Chapter 13 bankruptcy. Small business organizations and sole proprietors often will file a Chapter 13 so they can reorganize their business without the expense and time involvement of a Chapter 11 bankruptcy.