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Chapter 11 Bankruptcy Basics
Many troubled companies choose Chapter 11 bankruptcy to reorganize their debts. Learn more about the basic principles and why businesses choose this route as opposed to Chapter 7 or Chapter 13 bankruptcy.
August 18, 2011 /Health and Fitness PR News/ -- Chapter 11 bankruptcy is a form of bankruptcy that allows corporations and partnerships to reorganize their debts and create a reasonable repayment plan, so that the business may return to profitability. Chapter 11 is not limited to businesses, as individuals may file under this chapter as well. However, troubled businesses often take this route because it allows for the restructuring of an unlimited amount of debt, unlike Chapter 13.
In addition to creating repayment schedules, Chapter 11 also allows businesses to remain in control of their assets. As "debtors in possession" they can continue their operations and maintain decision-making powers. Upon filing a bankruptcy petition, they are required to file statements showing income and payments made to creditors, profit and loss statements, as well as balance sheets.
In some instances, a business can also act as its own trustee. However, the U.S. Trustee commonly appoints a creditor's committee to investigate the debtor's business conduct and to ensure the company's assets are protected during the proceedings.
The bankruptcy code allows debtors four months from the filing date to create a repayment plan. If no repayment schedule is filed within that time, creditors may create a plan based on their respective claims. Like Chapter 7 and Chapter 13 bankruptcy, creditors are divided into classes based on the nature of their claims (secured, unsecured and priority claims). Creditors are given votes based on the amount of their claim. Essentially, those with larger claims are given more weight than creditors with smaller claims. The repayment plan can be submitted for court approval when the creditors affirm it.
Sometimes the creditors will not agree to the repayment plan. This may come about if they believe that certain debts can be repaid in full, the payment schedule is unrealistic or does not provide adequate guarantees for repayment. In these situations, the debtor can seek approval of the plan despite creditor objections. This process is known as "cramming down" the plan on the creditors, since the court makes a decision about the plan's viability as a matter of law.
Because of the complexity and detail of a Chapter 11 bankruptcy, working with an attorney is essential. Contact an experienced lawyer for questions about your rights and options.
Article provided by Glenn & Glenn LLP
Visit us at www.glennandglenn.com
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