Chapter 11 bankruptcy offers debt relief for businesses and select individuals. Also known as reorganization under bankruptcy law, Chapter 11 is a form of business bankruptcy usually employed by corporations or partnerships, although businesses or individuals can also manage their debt with Chapter 11.
Also known as reorganization bankruptcy, Chapter 11 is used by businesses to control their debt and manage their finances when they aim to keep their businesses open and alive. With the assistance of an experienced bankruptcy attorney, debtors filing for Chapter 11 create a new repayment plan to reorganize their debt by means of a repayment schedule. This schedule details the terms of payment to creditors over a certain period of time to cover all debts incurred by the business.
Because Chapter 11 involves a reorganization of the finances in a business rather than the liquidation of its assets, Chapter 11 business bankruptcy allows corporations, partnerships, and sole proprietorships in debt to maintain their property and business while managing their finances.
Debtor in Possession
Just as in Chapter 7 bankruptcy, Chapter 11 is initiated when the debtor files a petition with the bankruptcy court. This petition includes the following:
- Statement of Financial Affairs
- Schedule of Assets and Liabilities
- Schedule of Current Income and Expenditures
- Schedule of Executory Contracts and Unexpired Leases
The debtor who files for Chapter 11 bankruptcy maintains possession and control of the assets while undergoing a reorganization of finances, and thus is known as the “debtor in possession.” As the debtor in possession usually operates the business in debt and executes many of the functions that the bankruptcy trustee is responsible for in other types of bankruptcy, a trustee is generally not appointed in Chapter 11 cases, except under certain circumstances. The reorganization plan detailing the terms of repayment for the debtor must be pitched to creditors in bankruptcy court and the creditors must approve the reorganization.
Small business bankruptcy is very similar to personal bankruptcy. However, in the case of corporations and other similar large businesses, the business is an independent legal entity and the assets of the business owner are separate from those of the corporation. Thus, the owner is protected from liability and his or her assets are not considered with the bankruptcy of the business. Getting the assistance of a bankruptcy law firm near you will help to keep your affairs in order.