Chapter 11 Bankruptcy - When Your Assets are Large

You may be familiar with Chapter 7 and Chapter 13 bankruptcy after reading this website. However, there are other chapters that you should also understand. Chapter 11 Bankruptcy is one that you should take note of.

Chapter 11 is used when a person is in debts of more than $336,9000.00 unsecured or secured debts of at least $1,010,650.00. As this is a HUGE amount, Chapter 11 is usually filed by businesses. 

How Chapter 11 Works

In essence, Chapter 11 something like organizing the debts. In fact, it is similar to Chapter 13 bankruptcy. Instead of having debts cleared, a payment plan is constructed between the filer and the creditors so the debt is repaid.

In a Chapter 11, though, assets are often sold or liquidated to repay debts first.  During a Chapter 11 bankruptcy it is usually the goal that the business stays open and remains operational during the process.

The purpose is to allow a company to start anew and they can rebuild their business.

Filing a Chapter 11 Bankruptcy

Filing a Chapter 11 bankruptcy follows the same lines as filing any type of bankruptcy.  Papers and documents must be filed with the court; creditors get their chance to stake a claim for repayment.

In this chapter, the court will direct the selling of any assets available and will control the businesses finances during the entire process.

A Chapter 11 bankruptcy can take years to complete as it is a complex process.  This is why businesses are allowed to stay operational during the process.  This type of bankruptcy was created to help prevent job loss and other impacts on employees when a business ends up in financial trouble.

Debts are repaid in a structured order.  Secured debts are paid first, followed by other debts.  This is because secured debts are secured with something from the business that can be liquidated to payoff the debt. 

Filing a Chapter 11 bankruptcy is very damaging to a company.  There have been companies that have successfully filed a Chapter 11 bankruptcy and continued to operate and ended up rebuilding their company just fine.  That is not the normal occurrence, though.  Many times a bankruptcy filing is the end of a business.

It can be difficult to come back from a bankruptcy, especially for a business.  Usually a business is forced to reduce their operations.  Some can not make enough revenue to keep their business operating. 

As mention, always try to avoid bankruptcy. Look for alternatives like grants and financial aid. However, if there is no alternative and bankruptcy is the only way, then a business will have to work through the process with the court.