Is Chapter 11 Bankruptcy Liquidation or Restructuring?
The three most common types of bankruptcy cases filed in the United States are brought under Chapters 7, 11 and 13 of the U.S. Bankruptcy Code. Each type of bankruptcy provides a different end result for the debtor. Businesses commonly use Chapter 11 bankruptcy.
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Function
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The function of a Chapter 11 bankruptcy is to permit a debtor the ability to legally restructure a business venture. (In theory an individual debtor can file a Chapter 11 bankruptcy, but that is not common.)
Misconceptions
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A common misconception is that a Chapter 11 bankruptcy involves the liquidation of a debtor. Although some debts may be discharged, the purpose behind a Chapter 11 bankruptcy is to keep the debtor operating.
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Features
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The features of a Chapter 11 bankruptcy include the bankruptcy trustee stepping in to manage the debtor's business operations during the case. The bankruptcy trustee is the court official who oversees day-to-day issues arising out of cases before the court.
Time Frame
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Chapter 11 bankruptcy cases last for different periods of time depending on the issues. Some of these bankruptcies actually are rather brief--a matter of a couple of months.
Effects
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The effects of a Chapter 11 bankruptcy include everything from downsizing the business and laying off workers to ordering creditors to accept a reduction in the amount of money the creditor owes them.
Objective
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The ultimate objective of a Chapter 11 bankruptcy is the debtor ending up in a sounder financial position and the business remaining in operation.
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References
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- Photo Credit Image by Flickr.com, courtesy of Andrew Magill
