What Is Bankruptcy Chapter 11?
Chapter 11 of bankruptcy is part of the United States Bankruptcy Code. The law establishes the fundamental process and rules regarding reorganization anywhere under the authority of the United States law. This option is available to businesses of all types and individuals. The most common use of this chapter is in regard to corporate entities when an enterprise fails. This is one of the three most commonly used chapters along with Chapter 7 and Chapter 13.
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Function
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The main stipulation of Chapter 11 is for reorganization. This allows individuals or businesses to forgo liquidation of assets and establish a bankruptcy plan. Debtors have the first choice in establishing a reorganization plan, while creditors also have a say in the plan.
Effects
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To invoke Chapter 11, like all forms of bankruptcy, an automatic stay is put into effect. All creditors are required to halt collection efforts. In certain situations, however, the creditor can request that the court convert the case to Chapter 7 and call for liquidation of assets.
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Features
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If a business is involved with Chapter 11, the court can cancel all types of executory contracts. These are contracts that exist with vendors and customers as well as employees, such as those involving a labor union.
Significance
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Chapter 11 also offers a system of priority, allowing creditors with secured interest in an individual or business to have priority to collect before unsecured creditors. This means that a firm that supplies products or services will collect before other creditors.
Considerations
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There is a special provision within this chapter regarding aircraft. Section 1110 allows a secured creditor the right and ability to take possession of an aircraft within 60 days of first filing the bankruptcy documents. The only exception to this rule is if the business can recover from default.
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Resources
- Photo Credit Although, Wikimedia Commons, Public Domain, http://en.wikipedia.org/wiki/File:Banknotes.jpg
