What is Chapter 11 bankruptcy?

Chapter 11

Chapter 11 bankruptcy enables businesses and individuals to reorganize or liquidate their assets in a way that is more flexible than in Chapter 7 or 13 bankruptcy proceedings.  There are numerous tools at the disposal of a Chapter 11 bankruptcy filer; however, the most significant is the ability to restructure debts through a plan of reorganization.  Through a Chapter 11 bankruptcy proceeding, a Chapter 11 plan can cure loan defaults, significantly modify secured debts and payment terms, modify interest rates, strip liens from property, and pay taxes over time and without default interest and penalties.

Unless otherwise ordered, a bankruptcy filer acts a debtor-in-possession.  Unlike Chapter 7 or 13 bankruptcy proceedings, a debtor-in-possession fills the role as the trustee in a Chapter 11 bankruptcy case.  In this role, the debtor-in-possession has an exclusive time-period to file a plan of reorganization and must pursue actions in the best interest of the bankruptcy estate.

To confirm a Chapter 11 plan of reorganization, a debtor must show that the plan complies with the applicable elements of the Bankruptcy Code.  Specifically, the plan must be feasible, proposed in good faith, must have the support of at least one class of impaired creditors, and must be shown to be in the best interest of creditors.  Where a creditor objects to confirmation of the plan, the debtor can confirm the plan over the creditor’s objection; however, this will often require a trial.  Because resources are typically limited in a bankruptcy case, often parties reach a resolution before trial is necessary.

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