Questions About Chapter 11 Bankruptcy

Chapter 11 is a bankruptcy that allows a failing business to attempt to reorganize in a way that can keep the business alive.

Business Bankruptcy

Chapter 11 is for business, not private individuals. Private individuals who want to adjust their debts should look at Chapter 13.

Automatic Stay

The automatic stay is a legal cut-off point for all creditors' debt collection activities. As soon as a business files for Chapter 11 bankruptcy the creditors must immediately stop all collection activities, including letters, phone call, repossessions and foreclosures.

Reorganization Plan

The crux of Chapter 11 is the preparation of a reorganization plan. This plan outlines what debts the business intends to pay off, how the business will pay off the debts, and how the business will restructure to continue earning a profit.

Court Approval Required

The business submits the reorganization plan, but the plan is only effective if the court, meaning the bankruptcy judge, approves the plan. A judge will only approve a plan if it is fair, reasonable and likely to be successful.

Involuntary Bankruptcy

Most bankruptcies are voluntary, meaning the debtor chooses to declare bankruptcy. Sometimes, though, a creditor can force a debtor into bankruptcy if the creditor can satisfy the complex legal requirements for doing so.

References

• U.S. Bankruptcy Court