What Is Chapter Eleven?
Bankruptcy law allows people and businesses struggling with debt to financially to cancel or restructure their debts and get a fresh start. Chapter 11 bankruptcy protection, or "reorganization" bankruptcy, is one option open to those who need relief from overwhelming debt.
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Who Can File
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Chapter 11 bankruptcy is most often used to reorganize a business, such as a corporation, sole proprietorship or partnership. Corporations are held separate from the owners' and stockholders' other financial interests. If a sole proprietorship or partnership files for Chapter 11, the individual owners' personal assets and liabilities figure into the reorganization plan.
Filing the Petition
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Chapter 11 bankruptcy proceedings begin when a debtor or creditors file a petition with the court. When the petition is filed, all actions to collect debts from the petitioner must stop.
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Schedules Filed
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With the petition, the debtor usually files a list of assets and liabilities, a schedule of current income and expenditures, a schedule of existing contracts and leases; and a financial statement. Other disclosure requirements apply to individuals filing for bankruptcy (as opposed to businesses).
Reorganization Plan
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The debtor then files a reorganization plan showing what debts will be paid in full and in part, which contracts will be modified, and other pertinent information, as well as a disclosure plan showing creditors that the debtor has will be able to execute his reorganization plan. The reorganization plan may be a liquidation plan, in which case the debtor would liquidate the assets involved in the case and pay off creditors by a system delineated in the reorganization plan.
Confirming the Plan
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Creditors who will suffer losses from the reorganization plan through modification of an existing contract or only partial payment of a debt vote on whether to accept the reorganization plan. After the votes are counted, the judge holds a confirmation hearing before deciding whether or not to go along with the plan. The reorganization plan can commit the debtors' disposable income over the subsequent five years to funding the plan.
Discharge of Debts
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Once the reorganization plan is confirmed, the debtor is bound by it and any contracts it includes but is no longer responsible for the debts incurred by the plan was confirmed. This discharge of debts does not apply to certain obligations, such as alimony and child support, some taxes, some debts in criminal restitution orders, or personal injury judgments against the debtor.
Executing the Plan
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An individual debtor may be deemed responsible for executing the reorganization plan, in which case she becomes the "debtor in possession" of the assets up for disposal. A trustee appointed by the court oversees execution of the plan, ensuring that it is followed.
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