Chapter 11 bankruptcy is also known as “Re-organization bankruptcy.” It’s mostly used by large businesses that are in financial trouble. But it can also be used by individuals, corporations and partnerships.
The Appeal 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 carry on it’s operations throughout the bankruptcy proceeding. This allows the business organization the time it needs to reorganize with court supervision.
How Chapter 11 Bankruptcy Works
Business Concerns mostly apply for Chapter 11 bankruptcy as a means to restructure their debt without abandoning their business organization. To do this, the business files a petition which includes a list of assets and indebtednesses. It also furnishes a careful accounting of the financial matters of the company. The business must then propose a plan for payment of its debts and have that plan acknowledged by its creditors.
Drawbacks of Chapter 11 Bankruptcy
Chapter 11 bankruptcy is unquestionably the most costly corporate option in terms of legal costs and attorneys fees. But, it’s also the most flexible of all the bankruptcy alternatives. Additionally, it’s very time consuming. For these reasons, it’s usually recommended for big 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 unique for two reasons. First, it permits business organizations continue operating their business under court oversight. Second, it permits the debtor to serve as trustee. The legal term of art for this situation is “debtor in possession.”
Other Bankruptcy Alternatives
Chapter 11 Bankruptcy isn’t the only alternative available to a companies. Businesses can also reorganize in a Chapter 13 bankruptcy. Smaller business organizations and sole proprietors generally will file a Chapter 13 so they can reorganize their business without the cost and time commitment of a Chapter 11 bankruptcy.