To the general bankruptcy public, Chapter 11
filings will not be a major concern. Though technically possible for
individuals, filing for Chapter 11 is much more common for corporate
entities. Thus, unless they are business executives or sole proprietors, Chapter
11 filings will fall outside the realm of interest for most
Still, in terms of absolute incidents of filing for Chapter 11, over 10,000 petitions for
reorganization are filed in the United States per year, which is a significant
and fairly high amount. Therefore, it can be said that Chapter 11 bankruptcy
has a real function in the American economy.
Some notes on the prominence and purpose
of Chapter 11 filings today:
As with other forms of bankruptcy, filing for
Chapter 11 can be at least in part defined by what it is not. In contrast with Chapter
7 bankruptcy, Chapter 11 seeks a reorganization rather
than liquidaton of assets. Then
again, it may be a creditor or creditors who wind up filing for Chapter 11
bankruptcy on behalf of their debtor. This is not merely a magnanimous gesture
on creditors’ part, though.
As voluntary Chapter 11 filings are
usually sought to put a hold on the the demands of lenders, compulsory
petitions are essentially a means to an end. That is, they are in response to a
claim for monies owed to creditors that heretofore have gone unanswered. In
filing for Chapter 11 then, the goal of creditors is to reach an equitable
solution for the return of as much of their loaned funds as possible.
Regardless of whoever makes the initial
request, Chapter 11 filings are designed to allow a business to keep
running while it and its debt are
reorganized. Of course, in cases of questionable leadership, the permission of
companies to remain in action, often with little to no punishment for the
offending officers, is reasonably questionable in its own right. Nonetheless,
sometimes filing for Chapter 11 may be a saving grace to employees and stockholders alike. For
instance, Chapter 11 proceedings may be used to
transfer ownership to a new, more capable owner, in the process saving jobs.
Reorganization may also be worthwhile in maximizing a company’s value prior to
the sale of its parts.