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Understanding Chapter 11 Bankruptcy
By plrprousers | March 31, 2009
Chapter 11 bankruptcy is also known as “Re-organization bankruptcy.” It’s mostly utilized by big businesses that are in financial trouble. However it can also be utilized by individuals, corporations and partnerships.
Advantages of Chapter 11 Bankruptcy
The prime advantage of Chapter 11 Bankruptcy is that it’s a reorganization, not liquidation. The entity filing Chapter 11 is able to carry on it’s operations throughout the bankruptcy proceedings. This permits the business concern the time it requires to reorganize with court oversight.
How Chapter 11 Bankruptcy Works
Business Concerns more often than not use Chapter 11 bankruptcy as a means to restructure their debt without abandoning their business organization. To do this, the company files a petition which includes a list of assets and financial obligations. It also furnishes a careful accounting of the financial matters of the business. The corporation must then propose a plan for payment of its debts and have that plan acknowledged by its creditors.
Drawbacks of Chapter 11 Bankruptcy
Chapter 11 bankruptcy is decidedly the most pricey corporate alternative in terms of legal costs and lawyers fees. But, it’s also the most flexible of all the bankruptcy options. Additionally, it’s very time intensive. For these reasons, it’s generally recommended for sizeable corporations instead of individuals or small businesses. Less than 1% of all bankruptcy filings in the United States are Chapter 11 bankruptcies.
Uniqueness of Chapter 11 Bankruptcy
Chapter 11 bankruptcy is unusual for two reasons. First, it permits commercial enterprises keep on conducting their business under court oversight. Second, it allows the debtor to serve as trustee. The legal term of art for this situation is “debtor in possession.”
Other Bankruptcy Alternatives
Chapter 11 Bankruptcy isn’t the sole choice available to a business concerns. Companies can similarly reorganize in a Chapter 13 bankruptcy. Smaller business organizations and sole proprietors often will file a Chapter 13 so they can reorganize their business without the expense and time commitment of a Chapter 11 bankruptcy.
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