Chapter 11 Bankruptcy-Businesses

Chapter 11 is a type of bankruptcy that is a court-restructured debt repayment plan allowing a business to stay operating and defines how and when loans will be repaid. Often referred to as a reorganization bankruptcy, Chapter 11 usually stipulates that some of the company's assets be sold to satisfy some loans, but not enough to cease the operations of the business. The goal is for the business to continue to generate revenue while working with creditors to repay debts. Of all the types of bankruptcy available to businesses, Chapter 11 is the most common.

When a company does file for Chapter 11, the first step is to work with a law firm that specializes in corporate bankruptcy. The attorneys will assist a business in every aspect of filing for bankruptcy. First, a petition will be filed that includes the company's debts and assets. A detailed financial report is also included. The company administrator then becomes a "debtor in possession, which means that the company can keep possession of the assets but is subject to debt reorganization through a court-appointed trustee. The court can also grant complete or partial relief from the company's debts after evaluation.

Within a month of filing for bankruptcy, company representatives will meet with the attorney in what is known as a meeting of creditors. A trustee will be appointed to oversee the repayment process, and a repayment plan is decided on. It is also the time when creditors can ask a wide range of bankruptcy questions regarding assets, liabilities and other financial issues.

Within 120 days of a voluntary filing for Chapter 11 bankruptcy, the debtor must present a plan of reorganization. This is a detailed repayment plan that is designed to fit the needs of the company as well as the various creditors. A repayment plan can be structured to include many different things. For example, a plan may detail how creditors will be repaid from future earnings or stipulate that unsecured loans be paid back before secured loans. If the plan is feasible, proposed by the debtor in good faith and adheres to the bankruptcy code, it will be confirmed by the court.

Almost any type of company can file for Chapter 11 bankruptcy, from corporations to sole proprietors. While most companies can file Chapter 11, there are certain large companies and those in certain industries that are not allowed to file, such as insurance companies and utility companies.

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