Chapter 11 bankruptcy is available to individuals, partnerships and corporations that carry high levels of debt. Also known as "reorganization", this bankruptcy chapter offers debtors the chance to restructure debts and become financially viable again.
With chapter 11 bankruptcy debtors are allowed to keep assets such as businesses, homes, commercial buildings, equipment and automobiles. Similar to chapter 13 bankruptcy, debtors seeking protection under chapter 11 must submit a repayment plan which must be approved by a bankruptcy judge.
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Filing chapter 11 is more expensive and time consuming than any of the other bankruptcy chapters. It is also considerably more difficult to adhere to the strict guidelines and repayment plan. Bankruptcy experts claim about 10-percent of chapter 11 reorganization plans are successful.
Perhaps the reason for the high failure rate stems from the fact chapter 11 is used primarily by mega-corporations and the exceptionally wealthy. Two prime examples of large corporations that have filed for chapter 11 bankruptcy protection include Lehman Brothers and Washington Mutual.
Chapter 11 bankruptcy must be confirmed through the U.S. Trustee's creditors committee. Members of the committee cast votes to approve or deny the debtor's proposed repayment plan. Debtors must file a disclosure statement and repayment plan which includes information about their assets, liabilities and business affairs.
The disclosure statement is used to provide adequate information to the Trustee's creditor committee allowing them to make informed decisions on the financial status of the debtor. The committee uses this information to determine if the debtor is financially capable of adhering to the proposed repayment plan.
Once chapter 11 is confirmed, the debtor's finances are supervised through the court until debts are paid in full. Corporations are required to repay outstanding creditor debts before distributions can be paid to shareholders.
Chapter 11 bankruptcy is one of the most complex, yet flexible, bankruptcy chapters. It encompasses multiple facets and adds layers of complexity not found in other bankruptcy chapters. However, the flexibility grants debtors substantial opportunities to restructure debts.
Nearly everyone filing for bankruptcy protection requires the assistance of a qualified bankruptcy attorney. However, attempting to file chapter 11 without a lawyer would be disastrous. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act made significant changes to bankruptcy laws. Few people can muddle through the legalese of BAPCPA.
Two excellent resources for learning the intricacies of chapter 11 bankruptcy include Cornell University Law School and the United States Trustee Program; a component of the U.S. Department of Justice.
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