Chapter 11 BankruptcyChapter 11 is a chapter of the United States Bankruptcy Code which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to your business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. When your business is unable to service its debt or pay its creditors, your business or its creditors can file with a federal bankruptcy court or protection under either Chapter 7 or Chapter 11.
A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where you reside. A petition may be a voluntary petition, which is filed by the you, the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements.
Generally, a written disclosure statement and a plan of reorganization must be filed with the court. The disclosure statement is a document that must contain information concerning the assets, liabilities, and your business affairs sufficient to enable a creditor to make an informed judgment about the your business' plan of reorganization. The contents of the plan must include a classification of claims and must specify how each class of claims will be treated under the plan.
As with cases under other chapters of the Bankruptcy Code, a stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation.
A major role in chapter 11 cases is played by Creditors' Committees. The committee is appointed by the U.S. trustee and ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor. Among other things, the committee consults with your business on administration of the case; investigates the business' conduct and operation of the business; and participates in formulating a plan. A creditors' committee may, with the court's approval, hire an attorney or other professionals to assist in the performance of the committee's duties. A creditors' committee can be an important safeguard to the proper management of the business by the debtor in possession.
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