What is Chapter 11 Bankruptcy?
The goal of Chapter 11 is to give troubled businesses a chance to reorganize themselves and take a shot at success. During this reorganization, the business is allowed to continue under the supervision of the bankruptcy court and creditors. The bankruptcy courts also have the power to cancel some or all of the company's debts, which gives these failing businesses a chance to start fresh without these burdens. Typical debts that will be considered for discharge are unsecured loans, business contracts, and real estate leases.From the creditors' standpoint, Chapter 11 bankruptcy is favorable because it gives them a better chance of recouping their losses. The bankruptcy court appoints a creditors' committee, which oversees the reorganized business' operations and management. This committee also acts as the governing body with which the debtors will discuss proposed plans of reorganization. In this type of reorganization, creditors stand a much better chance of getting their money since jobs and revenue are still retained. As a result, Chapter 11 bankruptcy becomes quite a viable option as it allows failing businesses the chance to continue in the future.
What Do You Need To Know Before Filing Chapter 11?
Since corporations exist separately and apart from their owners and stockholders, a Chapter 11 bankruptcy does not put the personal assets of stockholders at risk beyond their investment in the company. Unfortunately, in a corporation Chapter 11 bankruptcy, stockholders are often left empty-handed. Once the bankruptcy is completed they lose most rights and interest in any assets. However, in a sole proprietorship where the owner is the debtor, there is no separate identity between owner and debtor and thus both business and personal assets are at risk. Furthermore, in a partnership bankruptcy filing, the partner's personal assets can actually be appropriated to pay back creditors.Chapter 11 bankruptcy is similar to the personal Chapter 13 filing, but there are several key differences. Chapter 11 imposes no limitations on debt, whereas Chapter 13 does. Most importantly, the Chapter 11 process is much more complex and expensive when compared to Chapter 13. As a result, businesses and corporations often resort to Chapter 11 while most individuals choose a Chapter 13 reorganization bankruptcy. For individuals, Chapter 11 bankruptcy allows more control than Chapter 7 bankruptcy over the selling of assets to retire debt.
Because filing is complicated and mistakes could be costly, it is best to first consult with a bankruptcy attorney to determine if Chapter 11 bankruptcy is right for you.
Source:
US Courts-Chapter 11 Bankruptcy
About the Author:
Heindrick So works for a Bay Area Real Estate company that specializes in residential wholesale lending. His work experience is comprised mostly of sales and marketing background which included a high end media sales position at Magnolia Hi-fi. Heindrick is also in his final year of pursuing his Bachelor's Degree in Electrical Engineering at San Jose State University.
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