Chapter 11 Reorganization

What is Chapter 11 Reorganization?

Chapter 11 reorganization is a form of bankruptcy that involves restructuring of a debtor’s business affairs, debts and assets. A Chapter 11 caters to corporations that require time to reorganize their debts. It gives the debtor a fresh start provided that the debtor adheres to the Chapter 11 reorganization plan. A Chapter 11 bankruptcy is the most complicated of all bankruptcy cases and can be very expensive. As such, it is recommended to seek out legal counsel from an experienced business debt relief lawyer.

Chapter 11 reorganization assists businesses restructure their financial obligations. Perhaps one of the most attractive characteristics of a Chapter 11 reorganization is that business owners do not have to relinquish control of the daily operations of the business. Furthermore, they are under protection of the Automatic Stay which means that creditors may not engage in any collection activities.  Although corporations, partnerships and limited liability companies (LLCs) usually file Chapter 11, in rare cases, individuals with a lot of debt, who do not qualify for Chapter 7 or 13, may qualify for Chapter 11. Typically, the duration of a Chapter 11 case may be up to two years.

Business Operations During a Chapter 11 Reorganization

The day-to-day operations of the business may continue. The debtor, now referred to the debtor in possession runs the business as usual.  However, if there is any indication of fraud, dishonesty or gross incompetence, a trustee steps in to run the business through the bankruptcy proceedings.

Keep in mind that the business may not make certain decisions without consent from the Court such as the sale of assets other than inventory, starting or terminating a rental agreement, and stopping or expanding business operations. The court makes decisions control relating to retaining and paying attorneys, and entering new agreements with vendors and unions. in addition, the debtor may not arrange a loan that will will be granted after the bankruptcy is complete.

Chapter 11 Reorganization Plan

Debtors filing a Chapter 11 bankruptcy are give the first chance a reorganization plan. In order to restructure its finances, businesses may downsize business operations to reduce expenses and renegotiate debts. In some cases, businesses may liquidate all assets to repay creditors. If the plan is realistic and fair, the courts approves it, and the Chapter 11 reorganization moves forward. The plan must also be in the best interest of the creditors. Creditors may propose a plan if the debtor does not suggest one.