What Is Bankruptcy 11

Introduction

Over the last several years many have heard of chapter 11 bankruptcy. Headlines on the news and in the newspaper have discussed various companies filing for chapter 11 bankruptcy. However now everyone understands exactly what chapter 11 bankruptcy means. Or how it differs from a chapter 13 bankruptcy. The difference between a chapter 11 bankruptcy and a chapter 7 is that in a chapter 7 the business will close down and all of the business's assets will be sold by a trustee.

History

A chapter 11 bankruptcy is available for both businesses and individuals. However, chapter 11 bankruptcy is most often used by businesses. Individuals usually would file a chapter 13 bankruptcy. A chapter 11 bankruptcy has no limits to the amount of debt that an individual or corporation can have, unlike a chapter 13, which does have limits.

When a large corporation finds itself with large amounts of debt and no way to pay the debt, the may wish to attempt a chapter 11 bankruptcy. This is a way for the company to restructure its debt, while allowing the business to keep running and to keep its assets.

Before a chapter 11 bankruptcy can be allowed a committee is appointed. This committee is made up of the company's largest creditors. These creditors are used to represent all of the creditors. They work together to negotiate with the debtor. This committee cannot be made up of anyone from within the company.

Before a chapter 11 bankruptcy can be confirmed it must be voted on by the creditors. If the creditors do not vote to accept this, it becomes more difficult to get approved.

Features

The debtor stays in control of the business in most cases. However the court oversees the running of the corporation. The debtor is allowed to find options to restructure the business and to make it profitable. Doing so may involve applying for loans and finding financing options. Often in order to get lenders to work with the business, the debtor will enter into an agreement where the lender gets first priority when payments are made each month.

During a chapter 11 bankruptcy the debtor or debtors are protected from further legal action. The court imposes an automatic stay which means that other litigation is put on hold while the debtor is working to turn the company around by restructuring. The court may also use its discretion as to whether or not to allow some contracts to be cancelled by the debtor.

Any restructuring plans will have to be approved by the court. Creditors have the right to speak before the court and have any objections that they may have heard.

If it is determined that the company has more debts than assets, the company goes to the creditors and the owner's of the business will receive nothing. The debtor is unable to work to restructure when the debts exceed assets.

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