Definition of Chapter 11 Bankruptcy


Your business present financial situation is getting to the edges. Should you fold your hands and wait for its insolvency? Fortunately, you can do something, to file for chapter 11 bankruptcy. It is obvious that you have heard about chapter 13 and chapter 7-bankruptcy reorganization, but not this type. What is the definition of chapter 11 bankruptcy? It is designed for businesses but also for individuals to enable them restructure their finances such that they are able to escape the liquidation of their business.

Definition of Chapter 11 Bankruptcy

What it entails?

Unlike its counterparts, Chapter 7 and 13, it does not require a trustee. On the contrary, the debtor, which is in this case the business, stays with the assets and runs the business as usual. However, the debtor is inspected by the court for the sake of the creditors. You are also given adequate time to forward a plan of the bankruptcy reorganization.

The plan, which is expected within four months from the time of your application, only permits the creditors to secure a small percentage of everything owed to them or to wait to be paid over a prolonged period. However, if during the process it is established that the “debtor in possession”, cannot manage the debt payment appropriately, a trustee can be appointed.

In addition, a creditors committee is formed by a higher authority, from a list of unsecured creditors, who have no interests in the business. The committee fights for the interests of the creditors to see to it that the debtors manage the plan well. On the other hand, the debtor uses the committee to negotiate for the most acceptable reorganization plan. From the bankruptcy chapter 11 definition, the debtor is allowed much flexibility to pay their debts, something that is not common in other bankruptcy options.

Although the debtor is allowed to continue operating their business, major decisions of the organization are made by the bankruptcy court.

Bankruptcy Chapter 11 Definition?

The court is the final decision maker when:

  • The business want to sell any of its assets
  • They want to break or enter a lease of real property
  • Seeking lending plans or mortgage, which may enable the debtor to borrow money, when the chapter 11 bankruptcy is unfolding
  • Closing or expanding enterprises
  • Entering into new contractual agreements
  • Retaining or making payments to company lawyers and other staff

Conditions for chapter 11 reorganization plan

While the court gives you the whole mandate of formulating your own reorganization plan, it still retains the responsibility of confirming the plan. For the plan to get confirmation from the bankruptcy court, it must meet four conditions. Firstly, it must be practical, that is, the business must prove beyond doubt that it will be in a position to gather enough money to honor payments to lenders as well as for meeting its expenses. Secondly, the plans must be in good faith. Thirdly, the plan must favor the creditors. Lastly, the reorganization plan must be fair and equitable. They must be paid within the term of the plan. The debtors must also not keep anything until they have met all the obligations.

Now that you know chapter 11-bankruptcy definition, you can weigh your options to see whether it suits your business position or not. Do not wait until your creditors pounce on your assets. Instead, protect them by filing for chapter 11 bankruptcy.

Craig R. Chlarson - Utah Bankruptcy Attorney

My name is Craig R. Chlarson. Whether you are seeking to eliminate your debt, typically through a chapter 7 filing, or whether you are seeking to reorganize your debt, typically through a chapter 13 filing, or even if you have basic bankruptcy questions, call me today. I can help you.

To schedule an appointment, call (435) 901-3449

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