[Download step-by-step guidance and analysis on Chapter 11 bankruptcy proceedings.]
Bankruptcy is a legal proceeding for individuals and entities in some form of financial distress, typically those who are unable to pay their debts to creditors. In the United States, bankruptcy is only available through the federal courts, and the law governing bankruptcy is the United States Bankruptcy Code.
Ordinarily, once a bankruptcy case is filed, an automatic stay is immediately put in place to shield the debtor from collection actions while the bankruptcy case proceeds. The form of relief available to the debtor depends on which chapter of the Bankruptcy Code the debtor proceeds under. Chapter 11 bankruptcy, in particular, refers to Chapter 11 of the United States Bankruptcy Code, and it typically involves a restructuring of debts.
What is Chapter 11 bankruptcy?
Cases filed under Chapter 11 of the United States Bankruptcy Code are legal proceedings that provide for reorganization. Individuals, corporations, small businesses, and other business entities may file a Chapter 11 case. Chapter 11 bankruptcy provides business entities, and individuals with large amounts of debt, an opportunity to reorganize their financial affairs and deal with all of their creditors in a single proceeding.
The debtor in Chapter 11 ordinarily files a plan of reorganization to be voted on by its various classes of creditors. The plan may provide for restructuring of the debtor’s debts. Alternatively, the debtor can conduct a company sale under 11 U.S.C. § 363 followed by a liquidating plan that distributes the sale proceeds to creditors. Chapter 11 reorganizations may be voluntary, filed by the debtor, or involuntary, filed by creditors of a potential debtor.