Chapter 11 Bankruptcy

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chapter 11 bankruptcy explainedBankruptcy cases are more common than you might think. In 2013, there were an estimated 1,071,932 bankruptcy filings in the United States. Of these cases, a majority were Chapter 7 cases (728,833 of them, to be exact). But a sizable amount (8,980 cases that year) were Chapter 11. Most people are familiar with Chapter 7 bankruptcy, as that is what one would most likely file as an individual, but it is also important to know about all the specificities of each case. Proceed to see Chapter 11 bankruptcy explained:

Chapter 11 is also sometimes known as a “reorganization” bankruptcy and is often used specifically for a corporation or partnership. People in business, or individuals, can also seek relief under Chapter 11, granted they meet certain specifications. For example, you may be eligible if you have too much debt or income to qualify under Chapter 7 or 13.

The point of Chapter 11 is to allow a struggling business or business individual to restructure their finances in order to maximize the return to their creditors and investors. Some notable filers under Chapter 11 bankruptcy include General Motors, United Airlines, Lehman Brothers, and K-Mart.

As with most other types of bankruptcy, the first step is to file a petition in bankruptcy courts. Typically, these cases are voluntary.

There is no absolute limit on the duration of a case of Chapter 11 bankruptcy. Some can last a few months. Others can last up to two years.

The major characteristic of Chapter 11 bankruptcy is that, although the filer usually continues to conduct business, they do lose control over major decisions. The bankruptcy court must now approve any sale of assets, like property, the entering into or breaking of a lease, mortgage or other financing arrangements, and the shutting down or expansion of business operations.

Usually, the debtor has a chance for four months after they file Chapter 11 to propose a reorganization plan. After that period has ended, the creditors’ committee or other involved parties have the chance to propose competing reorganization plans.

Essentially, a Chapter 11 case leads to a contract between the debtor and lender as to how it will operate and pay its obligations in the future. If you or your business is thinking of filing for bankruptcy under Chapter 11, contact a bankruptcy attorney to have Chapter 11 bankruptcy explained fully.

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