Filing for Bankruptcy under Chapter 11

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February 5, 2011
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Filing for Bankruptcy under Chapter 11

Most of us are familiar with a Bankruptcy Chapter 7 or a Bankruptcy Chapter 13, but what is a Bankruptcy Chapter 11? A Bankruptcy Chapter 11 is usually filed by a business. With the United States economy taking a severe hit, many businesses are filing for bankruptcy. Many of the gigantic corporations that you hear about making bankruptcy news generally file for bankruptcy under this chapter.

Filing bankruptcy under chapter 11 can be very complicated and usually very expensive. One of the reasons a business may file for bankruptcy under this chapter of the bankruptcy law, is to allow the business to continue to operate while the collection of debts by creditors is halted. The business continues to operate under the auspices of the bankruptcy court, while the specifics and all bankruptcy questions are answered and the bankruptcy is worked out.

The bankruptcy attorney, or sometimes a group of bankruptcy attorneys, usually charges a substantially higher fee than a bankruptcy chapter 7 or even a bankruptcy chapter 13. The bankruptcy lawyer representing the debtor usually spends most of his time fighting and negotiating with the bankruptcy attorneys representing the creditors.

Much like a Bankruptcy Chapter 13, a chapter 11 seeks to create a reorganization plan to liquidate some of the assets of the business that are not producing income and possibly downsize the business to a point where the creditors can be paid under the plan. If this is not possible, the chapter 11 file for bankruptcy will then insure that the business will be entirely liquidated in a properly structured manner to allow the creditors to be paid as much as possible without the business coming to a screeching halt. On the other hand, in the event the business did not file for bankruptcy protection, the creditors could seize assets in a mad rush and the business would implode immediately whereby everyone, including the creditors, will lose.

With the reorganization plan, in a large chapter 11 file for bankruptcy, the creditors may be categorized into groups or classes. The group or class will usually vote on the plan to see who receives how much and what assets.

Much of the work of the bankruptcy lawyer representing the debtor is negotiating with the creditor’s bankruptcy attorneys. If you are a moderate to large sized business you should consult with a licensed bankruptcy attorney who is well versed in bankruptcy law as it pertains to a chapter 11 filing for bankruptcy.

Jay King is a owner of BankruptcyIntro.com. We’ve all heard of large companies filing for bankruptcy or “going bankrupt” and most of us would think that particular company must be in trouble.
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