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All you need to know about Chapter 11 Bankruptcy


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Chapter 11 is frequently known as the reorganization chapter of the bankruptcy code because it allows a debtor to reorganize financial obligations while retaining assets, generally through the sale of certain assets to pay down debt and refinance existing debts.

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All you need to know about Chapter 11 Bankruptcy

  1. 1. ALL YOU NEED TO KNOW ABOUT CHAPTER 11 BANKRUPTCY By Suzzanne Uhland Image courtesy of Ralph Daily at
  2. 2. Bankruptcy in the United States is governed under the United States Constitution, which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress codified Bankruptcy in Title 11 of the United States Code and is commonly referred to as the "Bankruptcy Code". Some law relevant to bankruptcy is found in other parts of the United States Code. For example, bankruptcy crimes are found in Title 18 of the United States Code. Tax implications of bankruptcy are found in Title 26 of the United States Code, and the creation and jurisdiction of bankruptcy courts are found in Title 28 of the United States Code. While bankruptcy cases are filed in United States Bankruptcy Court, and federal law governs procedure in bankruptcy cases, state laws are often applied when determining property rights. For example, law governing the validity of liens or rules protecting certain property from creditors, may derive from state law or federal law. Because state law plays a major role in many bankruptcy cases, it is often unwise to generalize some bankruptcy issues across state lines. Bankruptcy in General
  3. 3. If you are deciding between chapter 7 or 11 in the Bankruptcy Code, you can review this information Suzzanne Uhland presents in this article: the-right-bankruptcy-choice Bankruptcy in General Image courtesy of Chris Potter at
  4. 4. This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11. Chapter 11 is frequently known as the reorganization chapter of the bankruptcy code because it allows a debtor to reorganize financial obligations while retaining assets, generally through the sale of certain assets to pay down debt and refinance existing debts. It grants a debtor what is known as an automatic stay from the enforcement actions of creditors. This precludes creditors from continuing collection efforts, from bringing a lawsuit, or from filing liens against property or foreclosing on property. In Chapter 11, a debtor generally remains in control of their estate. A trustee may be appointed for causes like fraud, dishonesty, incompetence or gross mismanagement, or if such appointment is in the best interest of creditors. Chapter 11 of the Bankruptcy Code
  5. 5. A plan of reorganization provides debtors with important tools for rearranging financial affairs. A debtor may also refinance existing loans including increasing the time in which it must be repaid, decreasing the interest rate if interest rates have declined since the loan was entered into, or changing/removing other arduous terms. Through Chapter 11, as with other bankruptcy chapters, a debtor can also sell an asset free and clear of all liens. The ability to sell an asset free and clear of liens can garner a greater sale price as purchasers are assured that the property is unencumbered and the purchaser is subject to less liability. Chapter 11 of the Bankruptcy Code
  6. 6. Either the debtor or its creditors may file a petition for Chapter 11 bankruptcy protection, the latter route referred to as an involuntary petition. Once the petition is filed with the U.S. Bankruptcy Court, the case begins and an automatic stay of all collections actions is put into effect. This means creditors may not pursue existing or new collection activities for unpaid debts unless the court issues a modification to the stay. This provides an opportunity for the debtor to draft a reorganization plan and negotiate more feasible repayment terms without worrying about its debt obligations. After the petition is filed, the business continues about its affairs without interruption. Meanwhile, under the supervision of the bankruptcy court, the debtor turns its attention to figuring out a repayment plan for its creditors. As with other types of bankruptcy, repayment amounts typically are much lower than the original debt totals. Process of Filing a Petition
  7. 7. Each class of creditors are entitled to vote to accept or reject your proposed treatment of them in your bankruptcy plan. After the initial hearings, the court will authorize you to start soliciting votes. Ideally, you get a vote of acceptance from every creditor and the judge approves the plan on this basis. You will likely have to negotiate various terms of treatment with the individual creditor to obtain acceptance so be prepared to compromise. In the event you have a creditor who rejects the plan, the creditor’s non-acceptance may be a major impediment to court approval of your plan. If all negotiations fail, you will have to ask the judge to approve your case over the objection of the non-accepting creditor. As long as you successfully negotiate the treatment of each participating creditor in your bankruptcy, you should be able to restructure your individual or business debt in a way that allows you to emerge from bankruptcy lean and profitable. For more information about Bankruptcy Suzzanne Uhland suggests: Succeeding in Chapter 11 Bankruptcy