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Chapter 11 Bankruptcy Reorganization

Chapter 11 Bankruptcy is oftentimes referred to as "reorganization" bankruptcy. Although Chapter 11 is available to individuals and businesses, it is typically reserved for those with high levels of debt. Two prime examples of large corporations seeking Chapter 11 bankruptcy protection include American International Group (AIG) and Lehman Brothers Holdings, Inc.

Chapter 11 bankruptcy provides debtors the opportunity to retain assets through the structure of a repayment plan. Once individuals and business entities receive Chapter 11 bankruptcy protection their finances are supervised by the court.

Throughout the bankruptcy process, the debtor acts as a fiduciary for creditors. Outstanding debts to creditors take priority over distributions to shareholders. In cases where organizations are unable to adhere to fiduciary regulations, the bankruptcy judge may appoint a Trustee to administer the debtor's financial obligations.

In order to obtain Chapter 11 bankruptcy confirmation, the entity filing for protection must receive approval through a U.S. Trustee creditors committee. Members of the committee cast votes to approve or deny the debtor's proposed repayment plan.

Debtors must file a disclosure statement along with their repayment plan which includes information regarding their assets, liabilities and business affairs. The purpose of the disclosure statement is to provide adequate information to the committee, allowing them to make an informed decision and determine if the debtor is capable of adhering to their proposed plan.

Once Chapter 11 is confirmed, the repayment plan overrides pre-petition rights of both debtors and creditors. Pre-petition rights include any claims which occurred prior to the debtor filing for bankruptcy protection. In most cases, only pre-petition debts are eligible for bankruptcy discharge.

Chapter 11 bankruptcy is one of the most complex, yet flexible, bankruptcy chapters. While the flexibility allows debtors substantial opportunities to reorganize debts, Chapter 11 can add layers of complexity not found in other bankruptcy chapters.

Filing for Chapter 11 bankruptcy protection is significantly more costly and time consuming than other bankruptcy chapters. Additionally, the failure rate is approximately 90-percent. Therefore, it is crucial to work with bankruptcy attorneys who specialize in Chapter 11 restructure plans.

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Published on October 03, 2008 at 02:22 AM

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