What is Chapter 11 Bankruptcy?
Posted on July 18, 2022 in Debt
Chapter 11 is a type of bankruptcy where the debtor’s business affairs, debts, and assets are restructured. Also known as a “reorganization” bankruptcy, they are the most complex type of bankruptcy proceeding. Because of the complexity, filing for Chapter 11 bankruptcy is more expensive than other types of bankruptcy proceedings. If you are already struggling financially and considering filing for bankruptcy, then the legal costs can seem oppressively burdensome. Additionally, your reorganization plan will need to be approved by the court and manageable enough for you to reasonably stick to it and pay off your debt over time.
Filing for bankruptcy provokes anxiety in a lot of business owners, but think about it as an opportunity to make a fresh start while not having to stop your business. Filing for Chapter 11 bankruptcy allows individuals and businesses to continue running while repaying their creditors. You should speak with an experienced bankruptcy lawyer to learn more about the United States Bankruptcy Code and how filing for Chapter 11 can benefit your company.
It’s important to understand that not all your debt will be wiped out in a Chapter 11 bankruptcy claim. Rather, you work with an attorney to create a plan to repay your creditors all or part of what you owe. If the courts approve your plan, then you will still be responsible for paying your remaining debts. In some very rare cases, the business can even borrow new money. Unlike other types of bankruptcy filings, you will still be able to maintain control over your operations, which is one of the benefits of filing for Chapter 11 bankruptcy rather than other types.
The three classes of creditors are priority, secured, and unsecured. Priority claims are those that are not secured by collateral, but they do have priority over your other debts under federal bankruptcy laws. Those debts include child support, spousal support, certain income taxes, or damages you owe in a personal injury lawsuit to a victim you have injured. Unsecured claims are those that are not secured by collateral, such as student loans, credit card debts, and medical bills. Secure debts are those that are secured by collateral such as mortgage loans and secured loans for other types of property.
If your debts outpace your income or profits, then you should speak to an attorney to determine if bankruptcy is the right decision for you and which course of action you should take. A bankruptcy lawyer will help you manage your current situation while keeping your eye on the future. An attorney can also help you complete the necessary bankruptcy forms and make the legal process smooth rather than stressful.
You will need to submit your plan and have it be approved by a Trustee appointed by the court. Upon ensuring that your business has the income and resources to follow through with your plan, the Trustee is generally charged with implementing and overseeing it. This can be an intimidating process to do on your own, but with the assistance of an experienced bankruptcy attorney, you can be assured that you are getting the help that you deserve.
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