Chapter 11 Reorganizations
A Chapter 11 case is intended to help individuals with significant debts and businesses reorganize. When a business files a Chapter 11 case, it allows for the business to continue operating as a “debtor in possession” and for its owners to remain in control.
Once a Chapter 11 petition is filed, an “automatic stay” is issued. This “automatic stay” usually puts an immediate end to ALL collection activity.
In a Chapter 11 case, a bankruptcy trustee is not automatically appointed. After a Chapter 11 case is filed, the “debtor in possession” must file a proposed plan of reorganization. The plan explains how the “debtor in possession” intends to reorganize. It can also free the business from having to pay some or all of its obligations. During the duration of the Chapter 11 case, the “debtor in possession” makes payments to creditors, and creditors are given the opportunity to comment on the proposed plan or propose a plan of their own. If a plan is confirmed, the “debtor in possession” will be able to reorganize in accordance with the plan. If no plan is approved, the case will either be converted to a Chapter 7 liquidation case or dismissed.
Sometimes, a struggling individual or business will file a Chapter 11 case, simply to obtain some “breathing room”. As is often the case, these individuals or businesses don’t have the ability to successfully reorganize. In these instances, a Chapter 11 case may result in an adverse outcome.
For this reason, it is essential that these individuals or businesses consult with an experienced bankruptcy attorney before filing a Chapter 11 case. Sometimes, it’s best for a business to close its operations in a manner that will suit the personal needs of its owners. This may involve the closing of the debtor’s business voluntarily or by way of a Chapter 7 filing. For these reasons, it is essential for any struggling individual or business to consult with an experienced attorney.
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