Chapter 7 vs. Chapter 11 Bankruptcy: What’s the Difference?
February 25, 2022
Chapter 7 bankruptcy and Chapter 11 bankruptcy are both common options for businesses in declaring bankruptcy. The key differences essentially amount to liquidation vs. a reorganization and restructuring of debt.
A business may liquidate through the bankruptcy process by filing a petition under either Chapter 7 or Chapter 11. But the primary purpose of a Chapter 7 bankruptcy is to liquidate the debtor’s non-exempt assets, make a distribution to creditors, and for the debtor to receive a discharge from prepetition debts, giving the debtor a fresh start. Chapter 7 cases are typically only filed voluntarily by the debtor.
The primary purpose of a Chapter 11 bankruptcy is to give business entities and individuals with large amounts of debt an opportunity to reorganize their financial affairs. 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.
This complimentary report will help corporate restructuring and bankruptcy professionals examine the Chapter 11 trends that emerged in the first half of 2022 and strategize for the rest of the year.
- Chapter 11 Bankruptcy
- On Demand: Anatomy of the Hertz Chapter 11
- Analysis: Three Practice Pointers for New Bankruptcy Associates
- Subscribers Only: Bankruptcy Fundamentals Toolkit
- Subscribers Only: CEO Considerations Before Filing Chapter 11