Chapter 11 Bankruptcy Definition

What is Chapter 11 Bankruptcy?

Chapter 11 is a bankruptcy proceeding where the court may appoint a trustee and committee of creditors to work with the defaulting borrower to rehabilitate the business. During the process of a Chapter 11 bankruptcy, the debtor maintains possession of the business and its assets.

REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.

Chapter 11 Bankruptcy Explained

A Chapter 11 bankruptcy proceeding is known as a reorganization, usually involving a corporation or partnership, but can also be beneficial to certain small businesses.

In many cases, a Chapter 11 bankruptcy may be the most sensible option for both the debtor and the creditors, because it allows the business to continue operating and paying its workers while also giving ample time for the debtor to pay back their creditors in full.

A Chapter 7 bankruptcy, by contrast, is where a court-appointed trustee liquidates the debtor’s nonexempt property and other assets, and the liquidated assets (which may or may not be sufficient to pay back the creditors in full) are used to cover the outstanding debts. There is no additional repayment after the liquidated assets are disbursed among the creditors.

References

  1. ^ “Chapter 11 – Bankruptcy Basics.” uscourts.gov, www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics. Accessed 25 Mar. 2020.
  2. ^ Petts, Jonathan. “Chapter 7 vs. Chapter 11 Bankruptcy.” Upsolve, 19 Dec. 2019, upsolve.org/learn/chapter-7-vs-chapter-11-explained/. Accessed 25 Mar. 2020.
  3. ^ Ruth, George E. Commercial Lending. 5th ed., Washington, D.C., American Bankers Association, 2004, pp. 306.

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