Chapter 11 bankruptcy, also known as "reorganization" bankruptcy, is a form of bankruptcy that allows businesses and individuals to restructure their debts, assets, and business affairs while remaining operational. It is named after a section of the U.S. Bankruptcy Code.
Heres a simplified explanation of Chapter 11 bankruptcy:
-
Purpose: To provide a struggling business or individual with an opportunity to make a fresh start by reorganizing their finances and paying off their debts over time.
-
Applicability: Chapter 11 is typically used by businesses, including corporations, sole proprietorships, and partnerships. It is also available to some individuals, although they rarely choose this option because Chapter 7 and Chapter 13 bankruptcies are usually quicker and cheaper.
-
Benefits: Chapter 11 allows a debtor to continue operating their business while developing a plan to repay or discharge their debts. This can help preserve jobs, maintain relationships with suppliers and customers, and potentially increase the value of the business.
-
Challenges: Chapter 11 bankruptcy can be a complex and expensive process, often involving large sums of money. It requires the debtor to fulfill their obligations under the plan of reorganization, which may include making regular payments to creditors and restructuring their business operations.
-
Ineligibility: Some entities, such as government agencies, insurance companies, banks, and nonbusiness trusts, are not eligible for Chapter 11 bankruptcy. Additionally, an individual cannot file for Chapter 11 if they have had a previous bankruptcy case dismissed due to willful failure to appear before the court or comply with court orders, or if the case was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
