Chapter 11 bankruptcy is also known as “Re-organization bankruptcy.” It’s mostly used by large businesses that are in financial trouble. But it can also be utilized by individuals, corporations and partnerships.
Advantages of Chapter 11 Bankruptcy
The prime advantage of Chapter 11 Bankruptcy is that it’s a reorganization, not liquidation. The corporation filing Chapter 11 is able to carry on it’s functioning throughout the bankruptcy legal proceeding. This allows the business concern the time it requires to reorganize with court oversight.
How Chapter 11 Bankruptcy Works
Companies more often than not use Chapter 11 bankruptcy as a means to restructure their debt without abandoning their business organization. To do this, the business files a petition which includes a list of assets and indebtedness. It also furnishes a thorough reporting of the financial matters of the company. The corporation must then offer a plan for payment of its debts and have that plan acknowledged by its creditors.
The Negative Aspects of a Chapter 11 Bankruptcy
Chapter 11 bankruptcy is unquestionably the most costly corporate option in terms of legal costs and attorneys fees. But, it’s also the most adaptable of all the bankruptcy options. Additionally, it’s very time consuming. For these reasons, it’s mostly recommended for larger corporations rather than individuals or small businesses. Fewer than 1% of all bankruptcy filings in the United States are Chapter 11 bankruptcies.
Uniqueness of Chapter 11 Bankruptcy
Chapter 11 bankruptcy is different for two reasons. First, it allows for commercial enterprises to continue running their business enterprise under court supervision. Second, it permits the debtor to serve as trustee. The legal term of art for this state of affairs is “debtor in possession.”
Other Bankruptcy Options
Chapter 11 Bankruptcy isn’t the exclusive alternative available to a business concerns. Commercial Enterprises can similarly reorganize in a Chapter 13 bankruptcy. Small business concerns and sole proprietors typically will file a Chapter 13 so they can reorganize their business without the cost and time commitment of a Chapter 11 bankruptcy.
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