Chapter 11 Overview

Chapter 11, also called "Reorganization," ordinarily is used by commercial enterprises that desire to continue operating a business and repay creditors concurrently through a court-approved plan of reorganization. Unlike Chapter 7, where a liquidation of all assets takes place and the business ceases to function, Chapter 11 allows a business to continue to operate while its debts are reorganized to allow the business an opportunity to return to profitability. The Chapter 11 debtor normally files a plan of reorganization within the first 120 days after the order for relief is issued and provides creditors with a disclosure statement containing information adequate to enable creditors to evaluate the reorganization plan. Certain “fast track” rules apply to “small businesses” as defined by the bankruptcy code which can accelerate the process. Click here to see more specific rules for small businesses.

Your exclusive period in which to file a plan may be extended or reduced by the court. After the exclusive period has expired, a creditor or the case trustee may file a competing plan. The United States trustee may not file a plan. A Chapter 11 case may continue for many years unless the court, the United States trustee, the committee, or another party in interest acts to ensure the case’s timely resolution. The creditors’ right to file a competing plan provides incentive for the debtor to file a plan within the exclusive period and acts as a check on excessive delay in the case.

The court ultimately approves (confirms) or disapproves the plan of reorganization. Under the confirmed plan, the debtor can reduce its debts by repaying a portion of its obligations and discharging others. The debtor can also terminate burdensome contracts and leases, recover assets, and rescale its operations in order to return to profitability. Under Chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized business.



Related Articles