Chapter 11 bankruptcy has also been termed "Re-organization bankruptcy". It's the most frequent type of insolvency in the USA. It is mostly used for large organizations or businesses under the strain of financial crisis. But it is also used by individuals, partnerships and corporations.
Advantages
Remember, Chapter 11 Bankruptcy is reorganization, not liquidation. In some situations, filing for Chapter 11 bankruptcy enables a business to remain operating throughout bankruptcy proceedings. What this means is that under hard circumstances, you now have time to reorganize under the bankruptcy court's supervision. This chapter has no limits on the amount of debt, where as Chapter 13 does.
How it works
Chapter 11 bankruptcy is generally employed by businesses as a way to restructure their debt without forfeiting their company. To accomplish this, the debtor files a petition which enumerates a list of assets and liabilities, and a particular account of financial affairs. And several of the bussiness's assets get sold off to pay off over due creditors. The debtor must then create a plan and have it approved by the creditors.
Note: If the corporation, business or individual enters the courthouse with no preparation, then the results might be that the judge gives the company to the largest creditor you owe.
Limitations & Drawbacks
Chapter 11 bankruptcy is by far the most high-priced corporate option in terms of legal costs and attorneys fees. Just to file a Chapter 11 Bankruptcy you must pay a filing fee of $830.00--plus a quarterly administrative fee to the Court. It is not generally employed by individual consumers because it is far more complex and high-priced to file.
Chapter 11 Bankruptcy is almost certainly the most flexible of all the chapters, and at the same time the hardest to generalize. Chapter 11 bankruptcy is a time consuming and expensive chapter, therefore it is only advised for individuals whose circumstances make Chapter 7 or Chapter 13 inapplicable or inappropriate. Fewer than 1% of all bankruptcy filings are Chapter 11s.
Comparison with Chapters 13 & 7
Chapter 11 bankruptcy is a viable option when a business has sufficient prospects to continue operations. Businesses are generally allowed to continue to operate while in Chapter 11 bankruptcy, though they must do so under the supervision of the bankruptcy court.
Chapter 11 Bankruptcy is unique, because the debtor will generally operate as his or her own trustee. This notion is called a "debtor in possession". Businesses that file Chapter 11 bankruptcy are generally are allowed to operate under the supervision of the bankruptcy court. In Chapter 7 bankruptcy a business sells off all its assets and eventually stops operation.
Other Options
Chapter 11 Bankruptcy is not the only option available to a business - reorganization is permitted under Chapter 13, too. Many times, a sole proprietor may file a personal bankruptcy, which allows for reorganization of the business without the cost of pursuing a Chapter 11.
For more options and information visit our Chapter 11 Bankruptcy website.
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