What is the Meaning of Chapter 11 for a Bankruptcy Filing?

Sometimes the meaning of bankruptcy such as Chapter 11 is difficult to grasp. Chapter 11 is similar to Chapter 13, but it is meant to help businesses reorganize debts instead of individuals.

Chapter 11 Bankruptcy Demystified

Under the federal bankruptcy code, Chapter 11 bankruptcy is established to allow all kinds of businesses to reorganize debt. Debt reorganization is similar to consolidation in that it pulls much of your business debt together. Depending on your financial situation, the debt is then reduced by a percentage, and your business is then left with a smaller amount of overall debt which it will pay off over a period of several months or a few years in most cases.

Chapter 11 is commonly used by corporations, but it can also be used by individuals, partnerships and sole proprietorships. It is used by businesses who are facing debt problems but still generating income. A business can get a handle on debt by reducing it through a Chapter 11 bankruptcy.

During bankruptcy proceedings, an automatic stay is imposed on any legal action against the business. Collections attempts and post bankruptcy debt collection efforts are halted by the filing. Some contracts such as lease agreements and supply contracts can be rejected through the bankruptcy process if doing so is favorable to creditors and the business. Filing Chapter 11 may have consequences to the stock of a company that is listed on a stock exchange. 

Several large corporations have filed for Chapter 11, but it is also available to small operations. Whatever the size of your business, Chapter 11 should be evaluated carefully with the help of an experienced bankruptcy attorney. It is vital to assess the downsides of filing bankruptcy as well as the up sides. If it puts your business in a bad relationship with creditors that you must continue to deal with, it may be better to try to settle those debts personally.

Getting Legal Advice

If you need help filing a Chapter 11 bankruptcy claim, an attorney who handles Chapter 11 bankruptcy cases in your vicinity can help you assess your financial needs. By looking at your entire financial situation, including debts, assets and liabilities, an attorney can help give you a professional perspective on your circumstances. During an initial consultation, you will be provided valuable information that can help your business get back on track.