Filing Chapter 11 Bankruptcy

Chapter 11 of the Bankruptcy Code governs the process of reorganization under the Bankruptcy Laws of the United States.

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When a troubled business decides that it is unable to service its Debt or Pay its creditors, it can file (or be forced by its creditors to file) with a federal bankruptcy court for bankruptcy protection under either Chapter 7 (liquidation) or Chapter 11. A Chapter 7 filing means that the business intends to sell all its assets, distribute the proceeds to its creditors, and then cease operations. A Chapter 11 filing, on the other hand, is an attempt to stay in business while a bankruptcy court supervises the “reorganization” of the company’s contractual and debt obligations. The court can grant complete or partial relief from most of the company’s debts and its contracts, so that the company can make a fresh start. Often, if the company’s debts exceed its assets, then at the completion of bankruptcy the company’s owners (stockholders) all end up with nothing — all their rights and interests are terminated — and the company’s creditors end up with ownership of the newly reorganized company, in the hopes that it will eventually succeed financially as compensation for their losses.

Chapter 11 of the Bankruptcy Code governs the process of reorganization under the Bankruptcy Laws of the United States.

Once Chapter 11 is filed the company may “emerge” from bankruptcy within a few months or within several years depending on the size and complexity of the bankruptcy. All debtors filing Chapter 11 cases are required to propose a plan of reorganization: if the debtor fails to make a proposal the court may consider proposals from creditors. If no plan of reorganization is approved by the court (this process is called confirmation) then the court may either convert the case to a liquidation under Chapter 7 or if in the best interests of the creditors and the estate the case may be dismissed resulting into a return to the status quo ante bankruptcy.

When a troubled business decides that it is unable to service its Debt or Pay its creditors, it can file (or be forced by its creditors to file) with a federal bankruptcy court for bankruptcy protection under either Chapter 7 (liquidation) or Chapter 11. A Chapter 7 filing means that the business intends to sell all its assets, distribute the proceeds to its creditors, and then cease operations. A Chapter 11 filing, on the other hand, is an attempt to stay in business while a bankruptcy court supervises the “reorganization” of the company’s contractual and debt obligations. The court can grant complete or partial relief from most of the company’s debts and its contracts, so that the company can make a fresh start. Often, if the company’s debts exceed its assets, then at the completion of bankruptcy the company’s owners (stockholders) all end up with nothing — all their rights and interests are terminated — and the company’s creditors end up with ownership of the newly reorganized company, in the hopes that it will eventually succeed financially as compensation for their losses.