Chapter eleven bankruptcy is used by corporations, partnerships and sole proprietors to reorganize business debts. Oftentimes referred to as 'corporate bankruptcy', Chapter 11 allows business owners time to restructure debt in an attempt to become a viable business.
During chapter eleven, businesses are allowed to continue normal operations. If the company is publically-held the reorganization plan must be provided to investors. Distribution of interest and principal payments to bondholders is prohibited during the reorganization phase. Stockholders are placed at the bottom of the list and unable to collect proceeds until creditors are repaid
Companies that have filed for chapter eleven bankruptcy protection are allowed to trade company stocks during reorganization. While there is potential to earn substantial profits buying stocks in chapter 11 companies, experts warn this type of investing can lead to substantial losses. Careful consideration should be given to the history of the company and its ability to become viable after bankruptcy.
When public companies file chapter eleven, a Trustee is appointed by the United States Department of Justice to oversee the reorganization and ensure the company adheres to governed policies.
The Trustee organizes a committee to represent creditors, stockholders and bondholders. The chapter eleven reorganization plan must be presented to and accepted by all parties involved. Upon approval the reorganization plan must be confirmed by the bankruptcy court. Finally, a detailed report must be filed with the Securities Exchange Commission (SEC).
Chapter eleven can also be beneficial for partnerships and sole proprietors. However, the restrictions placed on business owners during the chapter 11 reorganization period, oftentimes makes it more difficult to succeed. Smaller businesses might find chapter 13 bankruptcy to be more efficient for their needs.
If the business is unable to successfully reorganize under chapter eleven, they can petition the court to file for chapter 7. This bankruptcy chapter allows business owners to liquidate assets to repay creditors.
Before making a final decision to file bankruptcy, we invite you to browse our comprehensive bankruptcy article library. Here you will discover important information regarding the different bankruptcy chapters, as well as bankruptcy alternatives.
Published on March 15, 2009 at 02:03 AM