Chapter 11 Explained

When a person or a business needs to file for bankruptcy protection, there are several chapters within the United States Bankruptcy Code under which the initial petition can be filed that will govern the subsequent proceedings.  While many people understand the basics for bankruptcy petitions that are more consumer-oriented and usually filed under Chapter 7 or Chapter 13, many see filings under Chapter 11 of the code as extremely complicated and difficult to understand.

While a bankruptcy filing under Chapter 11 is usually a complicated matter, there are some basics that are not difficult to understand.  However, this is not a filing that one should attempt to take on individually.  You will need professional help in order to make sure that all goes as it should, so contact a bankruptcy lawyer today to schedule an initial consultation if you are having trouble meeting your obligations.

Basic Procedure under Chapter 11

Generally, a Chapter 11 filing is done by businesses, and this sort of filing is known as either a ‘reorganization bankruptcy’ or a ‘rehabilitation bankruptcy.’  The reason for these labels is that a Chapter 11 filing basically gives the petitioner time to put together a plan that helps it get out from under the debts it cannot pay at the time of the filing and to one day ’emerge’ from bankruptcy.

Below is a brief look at the procedures involved with a Chapter 11 filing:

Initial filing – When a business files for Chapter 11 protection, the court will order that the creditors cease with collection efforts while the case is pending, much like in a consumer bankruptcy filing.

Disclosure statement – The filing party must also file a disclosure statement that lists all assets and liabilities as well as a plan for reorganization that details how the debts will be paid during the plan’s duration.

Creditors’ committee – When a filing occurs, the largest creditors are usually grouped into a committee that will vote on the reorganization plan.  If the plan is approved, the parties move forward under it.  If it’s not, either the filing party must come up with a new plan, the creditors can come up with their own plan or the filing party can petition the court to ‘cram down’ their plan if it’s reasonable on its face, and the court will rule on it.

Post-plan – When the court ultimately accepts a plan, the debts as constituted prior to the filing are discharged and the petitioner must make the payments proposed in the plan until the time has passed.  If the company does not pay under the plan, it opens up several possibilities for enforcement.