Chapter 11 bankruptcy is one of the most commonly utilized forms of reorganization for those that have excessive debt which they cannot pay off. Individuals and corporations, regardless of type, may use Chapter 11 bankruptcy.
Businesses that declare Chapter 11 bankruptcy are often able to remain operating. However, the courts may have jurisdiction over that business to be certain that it is being run properly and that it does not create further debt during those operations.
Businesses that declare Chapter 11 bankruptcy must submit a plan to the courts. That plan may include payment to some creditors, while others receive none. This plan is put into place to allow the business to continue to operate, while preventing creditors from taking control of the company’s assets.
What is Chapter 11 Bankruptcy?
1. Chapter 11 Bankruptcy is a specific chapter in the United States Bankruptcy Code. An entity who files for a Chapter 11 Bankruptcy plan typically does so because its debt (finances they owe to creditors) has severely hampered its business model.
2. When a business (any form of business model) can no longer pay its creditors—due to a failing business venture or insurmountable debts—it may file for Chapter 11 Bankruptcy to alleviate its debt obligations. All Chapter 11 filings are initiated by local bankruptcy courts. These plans offer protection under Chapter 11 of the United States Bankruptcy Code.
3. A business entity which files for Chapter 11 bankruptcy does so with the intention to continue trading or operating while the Bankruptcy Court supervises and distributes its debts and contractual obligations. Through this program, the business entity has the potential to obtain a fresh start and remove itself from the constraints of its previous debt obligations.
4. Chapter 11 Bankruptcy legally permits a reorganization of the business structure and the underlying debts attached. This form of bankruptcy is available to all forms of businesses (sole proprietorships, corporations, general partners, limited liability companies, etc.) and effectively offers a number of tools and resources to alleviate the struggling business’ debt obligations.
5. A Chapter 11 filing empowers the bankruptcy trustee to operate the debtor entity’s business model. In addition, the program enables the debtor entity to acquire alternative avenues for financing and loans attached with favorable terms. In turn, these new lenders are promised first priority on the business’ earnings.
6. Furthermore, a Chapter 11 filing protects the business entity from any subsequent forms of litigation seeking to recoup the company’s finances for means of settlement.
7. In essence, a Chapter 11 filing re-organizes and re-structures the entity’s business model to streamline debt payments. During this reconstruction, however, the company retains its core characteristics and maintains its ability to carry out its unique product or service.
Filing for Chapter 11 Bankruptcy
1. Before filing for a Chapter 11 Bankruptcy, you must be sure that the options and advantages outlined in this specific bankruptcy plan fit your individual as well as your business’ needs. To effectively evaluate the benefits of a Chapter 11 Bankruptcy filing, you must compare and contrast all available forms of bankruptcy options.
2. After evaluating your different options, you must incorporate a bankruptcy lawyer into your legal filing. Filing a Chapter 11 bankruptcy is a complex legal process; a Chapter 11 filing can take a number of years. As a result, you must engage a legal professional who specializes in bankruptcy law.
3. You must file once in a six-month period. The local Bankruptcy Court will not permit you to file for a Chapter 11 Bankruptcy if you refused to comply with a repayment schedule or you did not show up for a hearing during the previous 6 months.
4. You must gather all financial information and documentation needed for a Chapter 11 Bankruptcy filing. You must file a list of all liabilities, assets, income, and expenditures associated with your business model.
5. Once all the information has been filed, you will meet with your creditors and file various reports to elucidate upon a financial situation. At this time, you may file a repayment plan during the first four months—after this time your creditors will be able to execute their own plans.