How Does a Chapter 11 Reorganization Work?

Chapter 11 reorganization is designed to provide debt relief for organizations overwhelmed with debt. It gives businesses an opportunity to restructure their debt and obtain a fresh financial start.   A Chapter 11 bankruptcy is a very complex legal process and can be very costly.  As such, it is recommended to obtain legal representation from experienced business debt relief lawyer.

Chapter 11 reorganization assists businesses restructure their financial obligations while maintaining control of the daily operations. In addition, business are protected from collection activities by way of Automatic Stay which prohibits creditors  from engaging in any collection activities.  In most cases, corporations, partnerships and limited liability companies (LLCs) usually file Chapter 11. However, individuals the exceed the debt parameters to file a Chapter 7 or a Chapter 13 may qualify for Chapter 11. a Chapter 11 case may last for a few years.

Business Operations During a Chapter 11 Reorganization

The day-to-day undertakings of the business may continue. The debtor, now referred to the debtor in possession is in charge of the business unless if there is any indication of fraud, dishonesty or gross incompetence, in which case a trustee will step in to run the business through the bankruptcy proceedings.

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 also makes decisions  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 priority to submit a reorganization plan. Strategies to restructure debt include downsizing, renegotiating debt and liquidation. If the Court deems the plan is fair, realistic and in the best interest of the debtors, the plan will be approved and the bankruptcy will move forward.

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