Chapter 11 bankruptcy is also known as “Re-organization bankruptcy.” It’s generally used by big businesses that are in financial trouble. But it can also be used by individuals, corporations and partnerships.
The Attract of Chapter 11 Bankruptcy
The prime advantage of Chapter 11 Bankruptcy is that it’s a reorganization, not liquidation. The business filing Chapter 11 is able to carry on it’s operations throughout the bankruptcy proceeding. This allows the business organization the time it requires to reorganize with court supervision.
The Workings of a Chapter 11 Bankruptcy
Business Organizations mostly use Chapter 11 bankruptcy as a means to restructure their debt without giving up their commercial enterprise. To do this, the business files a petition which includes a list of assets and liabilities. It also furnishes a detailed account statement of the financial matters of the business. The business must then offer 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 pricey corporate choice in terms of legal costs and lawyers fees. But, it’s also the most flexible of all the bankruptcy options. Additionally, it’s very time consuming. For these reasons, it’s mostly recommended for big corporations instead of 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 unusual for two reasons. First, it permits businesses continue running their business enterprise under court oversight. Second, it allows the debtor to function as trustee. The legal term of art for this situation is “debtor in possession.”
Other Bankruptcy Choices
Chapter 11 Bankruptcy isn’t the exclusive alternative available to a commercial enterprises. Businesses can also reorganize in a Chapter 13 bankruptcy. Small business concerns and sole proprietors often will file a Chapter 13 so they can reorganize their business concern without the cost and time commitment of a Chapter 11 bankruptcy.