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How does Chapter 11 help businesses get back on their feet?

We have spoken a great deal about Chapter 7 and Chapter 13 bankruptcy in this blog. But we have not mentioned Chapter 11 bankruptcy much, which we will rectify today.

Like Chapter 7 and Chapter 13, Chapter 11 bankruptcy is available for individuals with overwhelming debt, though it is more often used by businesses, especially ones organized as a corporation. It is often referred to as “reorganization” bankruptcy. Unlike Chapter 7, which typically leads to a business ceasing operation, under Chapter 11 the business’ owners or upper management often remain in control of the company as debtor in possession, though subject to bankruptcy court oversight.

This gives the business the chance to reorganize itself to make it less likely to have debt problems in the future. The debtor in possession can get new financing, while being protected from new collection litigation thanks to an automatic stay.

Of course, this reorganization must largely be monitored by the court. The debtor generally must file a disclosure statement and reorganization plan, except in some cases, when the disclosure statement contains enough information to make the plan of reorganization unnecessary.

After the court approves the plan, it also subject to vote by creditors whose claims are “impaired,” or those who will not receive all they are owed under the plan. After collecting the ballots from the creditors, the court will hold a hearing to determine whether to confirm the plan.

Just choosing which version of bankruptcy, if any, is best for your particular situation can be difficult and complicated. The advice of a bankruptcy attorney can be invaluable.

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