Understanding Chapter 11 Bankruptcy

What is Chapter 11 Bankruptcy?

Most often associated with business, Chapter 11 Bankruptcy is an option to larger corporations that can assist them from having to liquidate their businesses completely.  Organizations that have very high debt burdens can benefit from Chapter 11 bankruptcy, as this chapter of bankruptcy allows the company to restructure their debts. After Chapter 11 Bankruptcy, the company hopes to again become profitable.

How Do I File for Chapter 11?

As with any bankruptcy, there are a number of steps a petitioner must go through toe file for bankruptcy. In order to initiate Chapter 11 bankruptcy, a debtor files a petition with the United States Bankruptcy Court. After the petition is files, there is an automatic stay of collections actions by the debtor’s creditors.  Essentially what this means is that creditors may not pursue collection activities against the debtor (new or existing).  An exception can be made to collection efforts in the event that the court issues a modification of stay.

What Happens After the Petition is Filed?

Even though the business has petitioned for Chapter 11 Bankruptcy, they may continue with business as usual. This may also be a good time for the debtor to begin creating a repayment plan for the business debts. The debtor may be able to negotiate repayment options and terms with its creditors, that better align with the business’s financial condition.  In many cases, creditors are open to working with the debtor since they do want to collect their money.

Will the Court Approve my Reorganization Plan?

Reorganization plans that are created in good faith and in compliance with applicable bankruptcy laws should be approved by the bankruptcy court. If the court finds an issue with the plan it may require you to provide a new plan within a certain period of time.

If you own a business and are looking to file Chapter 11 Bankruptcy, you should consult with an experienced bankruptcy attorney. If you have questions about filing for bankruptcy or need assistance getting started, please contact the attorneys at Underwood & Micklin.