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Chapter 11 Reorganization for Assets Over a Million Dollars.

Chapter 11 bankruptcy is typically reserved for corporations and partnerships and allows for reorganization of company debts. Individuals with high levels of debts are also allowed to file for Chapter 11 protection. However, the majority of personal bankruptcy cases are filed under Chapter 13; particularly when debtors desire to retain assets and repay outstanding debts.

Oftentimes, when a business files for Chapter 11 bankruptcy protection, company assets are sold to compensate vendors. Depending on the circumstances, a bankruptcy judge or court Trustee will dictate which assets are sold and which ones can be retained in order for the company to continue functioning. It is generally in everyone's best interest to allow the company to retain assets which allow the company to generate revenue and protect employee jobs throughout the bankruptcy process

When businesses or individuals file Chapter 11 bankruptcy, the debtor is required to act as a fiduciary for creditors. Considerable controversy surrounds this legality since power is oftentimes entrusted to executives who improperly managed funds in the first place.

On the flip side, fiduciaries are required to report to their appointed Trustee and provide accounting reports. Under Chapter 11, outstanding debts take priority over shareholder distributions. If the fiduciary is not adhering to the repayment plans, the bankruptcy judge can appoint a Trustee to manage financial obligations until all debts are paid in full.

Filing for Chapter 11 bankruptcy protection is time consuming and costly. The new bankruptcy laws enacted in 2005 have made the process complex and complicated. Chapter 11 must be confirmed by members of the U.S. Trustee Creditors Committee. Members vote to approve or disapprove proposed repayment plans.

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

By far, Chapter 11 bankruptcy offers the most flexibility in restructuring debt. However, there are additional layers of complexity not found in other bankruptcy chapters. Experts suggest a mere 10-percent of Chapter 11 bankruptcy reorganizations are successful. Therefore, it is crucial to work with bankruptcy attorneys who specialize in Chapter 11 restructure plans.

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Published on October 18, 2008 at 02:22 AM

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