What is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is a legal process designed to help businesses to "reorganize" their debts while continuing to operate. Commonly referred to as a "reorganization" bankruptcy, the process aims to help the debtor restructure their debt while continuing their day-to-day business.

The business becomes what is known as a "debtor-in-possession" while a court-appointed trustee comes in to oversee the restructuring.

To begin the proceeding, you will file a "petition" in bankruptcy court, listing all assets, debts, income, expenses, and recent financial transactions.

Once the petition is filed, an "automatic stay" will go into effect stopping most creditors from collecting on debts or foreclosing on your home.

Since bankruptcy falls under the exclusive jurisdiction of the federal court, your case will be governed by the Bankruptcy Code which is federal law.

During the proceedings, the goal is to create a "reorganization" plan that outlines how the DIP plans to repay creditors over time. Strategies such as reducing debts, selling assets to pay down debts, restructuring operations, renegotiating contracts and leases are common.

It is important to note, the creditors will vote on the plan and the court must confirm. The plan, generally, must be feasible, proposed in good-faith, and in the best interest of the creditors.

Once the plan is approved, the debtor may receive a discharge of the remaining debts allowing them to reboot operations with less financial constraint.

Typically, you see large corporations and small businesses pursue Chapter 11.

If you have any questions, please reach out to SNIDER LAW PLLC today!