Brief Overview of Chapter 11 Bankruptcy – San Diego Chapter 11 Bankruptcy Attorney
Unlike proceedings under Chapter 7 bankruptcy, the primary purpose of filing a chapter 11 bankruptcy petition is to continue in business while reorganizing financial affairs. Chapter 11 can be filed by individuals, small businesses, as well as large corporations. Reorganization of a company’s financial affairs is accomplished by way of a written plan of reorganization that is approved, or “confirmed” by the Bankruptcy Court. A confirmed plan of reorganization can allow a company to restructure its financial obligations to its creditors so that it pays those obligations back over time. A confirmed plan can even allow a chapter 11 debtor to liquidate certain of its assets to provide a larger creditor recovery.
One of the central themes to Chapter 11 cases is that the debtor remains in possession and control of its business during the pendency of a case. Thus, a Chapter 11 debtor is often referred to as a “debtor in possession.” In contrast, in a Chapter 7 case, a trustee is appointed and a debtor loses control over its assets. Typically, the Chapter 11 debtor plays the dual role of both debtor and debtor in possession until a Chapter 11 Trustee is appointed or elected, the Chapter 11 case is dismissed or converted to Chapter 7, or a Chapter 11 plan of reorganization is confirmed.
One of the main requirements for a plan of reorganization is that it classifies creditor claims. This is so because creditors vote to approve or reject a plan by class. Furthermore, before a plan proponent can be distributed to creditors and interest holders to solicit votes on the plan, a disclosure statement describing that proposed plan must be approved by the Bankruptcy Court as containing adequate information regarding the plan.
During the initial stages of a Chapter 11 case, the debtor in possession has the exclusive right to propose and obtain acceptance of a plan of reorganization. However, once that exclusive right expires, any party in interest may propose a plan, such as a creditor, a creditor committee, or an equity security holder.
The Chapter 11 process can be lengthy and difficult, but with the right representation and solid business prospects, a small business or corporate debtor can utilize the Chapter 11 benefits in order to emerge from financial burden to become a profitable entity once again. This is a very brief overview of Chapter 11 and does not contain all the requirements of debtors in possession or plans of reorganization, but it should provide you a very general ideas of the purpose of a Chapter 11 bankruptcy case.