Chapter 11 Bankruptcy

Chapter 11 bankruptcy is intended primarily for the reorganization of businesses with heavy debt burdens. It is most often associated with corporations and small businesses. In some rare instances, an individual may file for Chapter 11 protection.

Chapter 11 is meant to provide the debtor a temporary reprieve from its creditors, called an “automatic stay.” During this reprieve, the debtor is required to provide adequate protection of the creditor’s secured property. During the automatic stay, the creditors can take no further garnishment, collection, or foreclosure action. All lawsuits filed against debtor are stalled and go dormant.

During the automatic stay, Chapter 11 protection allows the debtor to propose a plan for its ability to remain profitable post-bankruptcy. The debtor may have to cut costs, seek new sources of revenue, change business models, or sell subsidiaries while the bankruptcy court temporarily keeps creditors at bay.

While the plan is pending approval, the debtor is allowed to continue operating its business and engaging in business activities. However, the debtor has to file monthly operating reports to keep the court and creditors apprised of its activities.

If the debtor’s plan is accepted by the creditors, then the stay is lifted, the debtor begins paying his debts, and all previous garnishments, collections, foreclosures, and lawsuits are dismissed as the creditors are financially satisfied through the bankruptcy plan.

While Chapter 11 has certain advantages for those that qualify, including more time to file a plan and the opportunity to reorganize, it is more time-consuming and costly than other forms of bankruptcy. Nonetheless, Chapter 11 tends to be more debtor friendly than Chapters 7 or 13, especially in small business settings.

If you are thinking of filing for bankruptcy, we are here to help. Our attorneys and staff can get you the protection you need to save your business and protect your assets. We can also help you reorganize and attempt to gain court approval of your Chapter 11 plan.