HomeDictionaryChapter 11 Bankruptcy

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is a specific form of bankruptcy under the United States Bankruptcy Code that primarily applies to businesses or individuals with substantial debts and complex financial situations. It is often referred to as 'reorganization bankruptcy' because it allows the debtor to restructure their debts and financial obligations while continuing their business operations.

What You Need To Know

In a Chapter 11 bankruptcy, the debtor (either a business or an individual) files a petition with the bankruptcy court seeking protection from creditors. Once the petition is filed, an automatic stay is put into effect, halting all collection actions and lawsuits against the debtor. This gives the debtor a chance to propose a reorganization plan.

The reorganization plan outlines how the debtor intends to repay creditors over time, usually through reduced or extended payment terms. The plan must be approved by the bankruptcy court and the creditors, who have the opportunity to vote on the proposed plan.

During the Chapter 11 bankruptcy process, the debtor retains control of their business operations as a debtor-in-possession (DIP). However, in some cases, a trustee may be appointed to oversee the reorganization process.

Chapter 11 bankruptcy provides several advantages, including the ability to negotiate with creditors and potentially emerge as a financially healthier entity after restructuring debts. It also allows for greater flexibility in addressing financial challenges compared to other forms of bankruptcy.

However, Chapter 11 bankruptcy is a complex and costly process, and it requires extensive legal and financial expertise to navigate successfully. Not all businesses or individuals are eligible for Chapter 11, and it is typically reserved for those with significant assets and liabilities.