Many individuals believe when they file their personal
Chapter 7 bankruptcy petitions that they are really seeking relief under Chapter 11
bankruptcy.
This is because personal
Chapter 7 bankruptcies rarely make headlines the
way Chapter 11 bankruptcy petitions do. Chapter 11 bankruptcy protection is generally
awarded to businesses and corporations attempting debt relief by
restructuring the debt
load so that the new corporation which emerges is profitable. Chapter
11 in Bankruptcy
Code is also used for certain special situations involving individuals as
well.
Businesses file these Chapter 11 bankruptcy petitions to keep the
businesses running. Often times companies go through rough patches where
paying their creditors becomes a near impossibility. However, if the
company is allowed to restructure its debt into a repayment plan, this may
be more beneficial than completely closing its doors and selling off the
assets. This is beneficial to the creditors because they have received
payments on their debts, and companies that have emerged from the Chapter 11
bankruptcy are now profitable and moving forward in a positive direction.
Creditors in Chapter 11 bankruptcy bankruptcy plans will often be given a
portion of the company’s ownership as well if the debts cannot be
satisfied. This results in a change of ownership for the company, but still
enables the employees to continue to work and generate revenue to pay the
creditors.
The Chapter 11 bankruptcy plans are far more complex than an
individual Chapter 13 bankruptcy plan.
A key difference is that creditors in Chapter
11 bankruptcy vote on the approval of the plan. An individual Chapter 13 bankruptcy plan has no
such voting requirement. A debtor in a
Chapter 13 bankruptcy plan must file the plan
of reorganization within 14 days of the original filing of the Chapter 13 bankruptcy petition or
risk having the case dismissed. A company in Chapter 11 bankruptcy protection must
also provide a Chapter 11 bankruptcy plan of reorganization. If the creditors do not agree and no
resolution can be achieved, the creditors in a Chapter 11 bankruptcy may propose a
reorganization strategy of their own. Lastly, if now agreement can be met
between the company and the creditors, the Bankruptcy Court has the power to
convert the Chapter 13 bankruptcy case to one under Chapter 7 bankruptcy,
essentially closing the company’s
doors for good, or dismiss the case leaving the company at the mercy of its
creditors.
Clearly, no company goes into business with the
intention of filing a bankruptcy somewhere down the line to deal with its
creditors. It is equally as unpleasant to deal with the possibility that
the owners may lose control of their business. Decisions to file for
Chapter 11 bankruptcy protection are difficult ones. That is why the
bankruptcy attorneys at A
Better Way Bankruptcy may come in handy to clarify some of the issues that are present
and help the owners make the difficult choices in order to move the company
forward.
