Chapter 11 bankruptcy, also referred to as “business reorganization”, is used by companies who want to continue doing business while repaying creditors through a court-approved plan. Individuals may file a chapter 11 bankruptcy form if they have debt exceeding the cap placed upon a Chapter 13. Filing chapter 11 begins with the submission of a voluntary petition by the debtor or an involuntary petition by creditors. As with other Chapters of the United States Bankruptcy code, chapter 11 bankruptcy law grants an “automatic stay” providing a debtor time to commence negotiations with creditors in an effort to propose a reorganization plan. Under chapter 11 bankruptcy law, the debtor has the right to file a reorganization plan for the first 120 days after filing. The plan must provide creditors with a disclosure statement containing information about their financial circumstances so creditors can evaluate the plan. In Chapter 11, corporations exist separately from their stockholders, whose assets are not at risk.

Creditors holding similar types of claims are placed into the same class. Creditors whose claims are impaired may vote on the plan. A class is impaired when its legal rights are altered by a chapter 11. For a chapter 11 bankruptcy to be confirmed by the court, the creditors must approve it by a majority in number and by a 2/3 majority in dollar amount of claims. Under chapter 11 bankruptcy law, at least one impaired class must approve the plan. If a class votes against it, the court can “cram down” the plan if it finds it fair and equitable and doesn’t discriminate. Ultimately, the court confirms or disapproves the plan.

Often it calls for a debtor to remain in business, and to repay creditors from future earnings, from borrowings, or from the sale of assets. Priority claims and recent tax claims must be completely paid. Chapter 11 bankruptcy law dictates that secured claims are paid in full, plus interest. Unsecured non-priority claims must be paid a dividend at least equal to that what they would’ve received under a Chapter 7.

During the filing process, a debtor can act as his own trustee, called a "debtor in possession", and remains in possession of all estate property. However, a debtor filing chapter 11 has many creditors making it difficult to contact and negotiate with them. The law says that the United States Trustee in major cases can appoint creditor committees comprised of the debtor's seven largest unsecured creditors. They negotiate on behalf of the debtor-in-possession, monitor the debtor's progress, and provide input while the debtor is in chapter 11.

Once confirmed, the debtor can reduce debt by repaying some of its obligations and discharging others. Chapter 11 bankruptcy law allows a debtor to terminate burdensome leases and contracts, recover assets, and rescale its operations to once again become profitable. Thirty days after filing, the debtor attends a creditor meeting. The debtor must file monthly operating reports, showing income and disbursements, profit and loss, and a balance sheet. The debtor also pays quarterly fees to the Trustee based on the amount of money disbursed while in Chapter 11. The debtor normally undergoes a period of consolidation before emerging with less debt and a newly reorganized business.

For some businesses, filing is inevitable. However, if you are a small business or individual about to file a chapter 11 bankruptcy form, contact Knockout Debt first. We will reduce your debts so you can avoid it. Click here for a free consultation from Knockout Debt. Find additional chapter 11 bankruptcy information by contacting a corporate attorney specializing in it or research the laws on the Internet.