Chapter 11 Bankruptcy

By: Jared Myers

Chapter 11 bankruptcy has also been termed "Re-organization bankruptcy". It's the most familiar type of insolvency in the United States. It is typically used in large organizations or businesses dealing with financial crisis. But it is also utilized by partnerships, individuals and corporations.

Advantages

Remember, Chapter 11 Bankruptcy is reorganization, not liquidation. In some situations, filing for Chapter 11 bankruptcy allows a business to go on operating throughout bankruptcy proceedings. What this means is that under hard circumstances, you now have time to reorganize under the bankruptcy court's supervision. This chapter has no limits on the amount of debt, where as Chapter 13 does.

How it works

Chapter 11 bankruptcy is commonly used by businesses as a way to restructure their debt without forfeiting their bussiness. To do this, the debtor files a petition which includes a list of assets and liabilities, and a detailed statement of financial affairs. And several of the bussiness's assets are sold off to remunerate past due creditors. The debtor must then come up with a course of action and get it sanctioned by the creditors.

Notice: If the enterprise walks into the courthouse unprepared, then the results may be that the judge deeds over the business to the biggest people you owe.

Limitations & Drawbacks

Chapter 11 bankruptcy is easily the most high-priced corporate option in terms of legal costs and attorneys fees. Just to file a Chapter 11 Bankruptcy you must surrender a filing fee of $830.00--plus a quarterly administrative fee to the Court. It is not commonly used by individual consumers because it can be far more complicated and high-priced to pursue.

Chapter 11 Bankruptcy is almost certainly the most flexible of all the chapters, and at the same time the most difficult to generalize. Chapter 11 bankruptcy is a time consuming and expensive chapter, therefore it is only appropriate for individuals whose circumstances make Chapter 7 or Chapter 13 inapplicable or inappropriate. Fewer than one percent of all bankruptcy filings are Chapter 11s.

Comparison with Chapters 13 & 7

Chapter 11 bankruptcy is a viable option when a business has sufficient prospects to continue operating. Businesses are commonly allowed to continue to operate while in Chapter 11 bankruptcy, though they must do so under the supervision of the bankruptcy court.

Chapter 11 Bankruptcy is unique, because the debtor will commonly operate as his or her own trustee. This concept is called a "debtor in possession". Businesses that file Chapter 11 bankruptcy are commonly are allowed to operate under the supervision of the bankruptcy court. In Chapter 7 bankruptcy a business sells off all its assets and eventually ceases operation.

Other Options

Chapter 11 Bankruptcy is not the only option available to a business - reorganization is permitted under Chapter 13, too. Often times, a sole proprietor may file for personal bankruptcy, which grants reorganization of the business without the cost of pursuing a Chapter 11.

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