Chapter 11 - Business Bankruptcy

Chapter 11 is a chapter of the United States Bankruptcy Code that protects any form of business that is unable to service its debt or pay its creditors through a process of reorganization under the bankruptcy laws. Although an individual may file under Chapter 11, it is generally used to reorganize a business.

Chapter 11 allows the debtor in possession several mechanisms to restructure its business. The debtor may acquire financing and loans by giving new lenders first priority on the business' earnings. The bankruptcy court may also permit the debtor to reject and cancel contracts. Chapter 11 debtors are also protected from litigation against the business through the use of an automatic stay. While the automatic stay is in place, most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.

Generally speaking, it is more advantageous to reorganize than to liquidate. Reorganization often times preserves jobs and assets. An example of this on a macro scale would be General Motors. By extending and reducing their debts, and by dramatically reducing its operating costs, it has returned to viable state. Granted, the Federal Government had a hand in ensuring the success of this turn-around, but be assured, for many companies, it can be done without such assistance.

Frequently Asked Questions

  • What is a "Debtor in procession"?
  • Is Chapter 11 only for corporations?
  • What is a a "Small Business Debtor"?
  • What is a "Single Asset Real Estate Debtor"?
  • What is The "Automatic Stay"?
  • Who is on the "Creditors' Committees"?
  • What are the "Day-One Requirements"?
  • What is the "7-Day Package"?


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