Chapter 11 Bankruptcy

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Chapter 11 bankruptcy allows partnerships and corporations to restructure their debt over a longer time period. In doing this the business is able to remain open. Kmart is an example of a corporation that filed bankruptcy. At the beginning of 2002, they filed Chapter 11 with over 17 million dollars in assets. They remain open today. Small business has benefited the most from Chapter 11. Their failure rate is high. Being able to file bankruptcy is one way for them to get out of difficult financial situations.

Chapter 11 is more complicated than Chapter 7 or 13. Proceedings begin when a petition is filed with the court. This can be voluntary or involuntary. The same type of paperwork is required as with the other types of bankruptcy. The filing fee is much higher, often exceeding one thousand dollars. The biggest difference is you have to provide information on the business. An individual can be liable even with a Chapter 11.

When a corporation files Chapter 11 the individual owners do not risk their personal assets. They risk losing only the amount they invested in the company. The sole proprietor, on the other hand, risks everything. They are the business with personal and company usually intermingled. When they file Chapter 11 they usually end up filing personal bankruptcy as well. The amount of risk for partnerships depends upon how the business is structured or what type partner they are, general or limited.

Before filing Chapter 11 it’s highly recommended that you seek legal counsel. The debtors in this type petition act as fiduciaries, having rights and powers similar to a trustee. A trustee is appointed and paid a fee for their services. They are very involved in the business, especially anything pertaining to finances. The court appoints a creditors’ committee (the creditors of the debtor) to work with the trustee.

A business filing bankruptcy has much more responsibility and accountability than individuals. Basically the owner or officers in the case of a company, turn over all operations to the court. All funds are released to the trustee. An examiner is also appointed. They provide assistance to the trustee, often in negotiating or restructuring.

In Chapter 11 each debtor presents their restructured payment plan to the court. This must be done within 120 of the initial bankruptcy petition. It is common for them to seek extensions of time. The court can approve their plans or suggest a liquidation of all assets. Debtors are classified in five different ways. With this type bankruptcy there are numerous court appearances, motions to file, confirmations, and revocations before the final decree is granted. Just as with personal bankruptcy there are some debts that can not be restructured – child support, student loans, taxes, debts resulting from law suits, debts due to acts of fraud, etc – therefore you should always consult an attorney.

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