Chapter 11 bankruptcy has also been termed "Re-organization bankruptcy". It's the most common type of insolvency in the United States. It is typically used in large organizations or businesses under the strain of financial crisis. But it's also utilized by individuals, corporations and partnerships.
Remember, Chapter 11 Bankruptcy is reorganization, not liquidation. In some cases, filing for Chapter 11 bankruptcy allows a business to continue operating throughout bankruptcy proceedings. What that means is that under trying 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 business. To achieve this, the debtor files a petition which enumerates a list of assets and liabilities, and a detailed reckoning of financial affairs. And some of the company's assets get sold off to repay over due creditors. The debtor must then provide a plan and get it ratified by the creditors.
Warning: If the enterprise goes into the courthouse unprepared, then the result might be that the judge deeds over the business to the biggest creditor you owe.
Limitations & Drawbacks
Chapter 11 bankruptcy is definitely the most costly corporate option in terms of legal fees and attorney's costs. Just to file a Chapter 11 Bankruptcy you must pay a filing fee of $830.00--plus a quarterly administrative fee to the Court. It is not commonly used by individual consumers because it is far more complicated and costly to file.
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 advised for individuals whose circumstances make Chapter 7 or Chapter 13 inapplicable or inappropriate. Fewer than 1% of all bankruptcy filings are Chapter 11s.
Comparison with Chapters 13 & 7
Chapter 11 bankruptcy is a practical choice when a business has sufficient prospects to continue operating. Businesses are commonly permitted 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 notion is called a "debtor in possession". Businesses that file Chapter 11 bankruptcy are commonly are permitted to operate under the supervision of the bankruptcy court. In Chapter 7 bankruptcy a business sells off all its assets and eventually ceases operation.
Chapter 11 Bankruptcy is not the only option available to a business - reorganization is possible under Chapter 13, as well. 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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