If you are a business owner and have incurred huge debt, in order to get relief from your creditors or to have a revised plan to pay your creditors over time, keeping your business running, you can opt for Chapter 11 bankruptcy.

What is Chapter 11 bankruptcy?

Under the US bankruptcy code, Chapter 11 bankruptcy is also known as reorganization bankruptcy. It is generally filed by business organizations and corporations, which require time to restructure their debts, to reorganize their business assets and affairs. It gives you the opportunity to start afresh and will allow you to continue your business.

There is no limit to the amount of debt incurred. You will retain the possession of your assets and will operate your business under the supervision of the court, for the benefit of your creditors. You will be considered as a fiduciary for your creditors. If you can’t manage the business efficiently, a trustee will be appointed.

How does Chapter 11 work?

The bankruptcy arm of Justice Department will appoint some committees, who will see to the interest of your creditors and stockholders in working of the company, so that you can develop a plan of reorganization and get out of debts. The reorganization plan will be approved by the bondholders, creditors and stock holders. After that, the court will confirm the plan. If any creditor or stockholder rejects the plan, but, the court sees that the plan is well enough to resolve your debts, the court will still accept the plan. After the acceptance of the plan, a report should be filed with the SEC on Form 8k. You need to attach the copy of the complete plan with this report.

Who is eligible to file for Chapter 11?

Though you can file for Chapter 11 bankruptcy as a corporation, individual or a business, but, there are some restrictions on the publicly traded business houses, which include insurance companies, companies offering utility services, business conglomerates, etc. Instead of filing for Chapter 11, they have to redistribute and assign funds to repay their creditors.

What are the advantages and disadvantages of Chapter 11?

Filing for Chapter 11 bankruptcy has both advantages as well as disadvantages. Some of the advantages are:

You will have the choice to accept or reject a contract.

The most important advantage of this type is you will be given some time.

Just after filing for Chapter 11 bankruptcy, you will be able to enjoy an  “automatic stay”.

You can work out the proposal of a reorganization plan of the balance sheet.

Some of the disadvantages of Chapter 11 are given below:

The fees that you have to pay to your attorneys can be astronomical and have to be borne by you.

If you are unable to pay the astronomical fees, your assets may be liquidated.  This may prove disastrous for your business.

The judge will keep a close watch over the business proceedings of the company but the major decisions pertaining to the activities of the company will be taken by the judge.

If you want to resolve your debt problems, you should first try out various debt relief solutions and if all options fail to meet your requirements, then only you can opt for bankruptcy. Declaring your business bankrupt should be the last resort for you.