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Chapter 11 Bankruptcy

Under Chapter 11 bankruptcy, businesses can restructure debt payments and keep assets. This is unlike Chapter 7 bankruptcy that governs the process of a liquidation bankruptcy of businesses or individuals. It can be very expensive and is not for everyone.

The idea behind a Chapter 11 bankruptcy is that a reorganized business will be worth substantially more than the value of the assets of the business if they were sold individually. Chapter 11 is a business bankruptcy that provides protections including the ability to cancel some debts, and the ability to transfer some or all of the newly reorganized company to creditors whose debts were cancelled. Another benefit of Chapter 11 is that jobs may be saved and the remaining creditors may have smaller losses than if the company is dismantled or liquidated.

The following businesses may file a Chapter 11 bankruptcy:

  • Corporations
  • Partnerships
  • Sole proprietorships

Under Chapter 11 bankruptcy, the debtor/business/individual keeps possession of the bankruptcy assets while going through the process of reorganization. During a Chapter 11 bankruptcy proceeding, the owner of the business remains in possession until one of the following happens:

  • The business workout or reorganization plan is confirmed
  • The case is dismissed
  • The case is converted to a Chapter 7 case
  • A bankruptcy trustee is appointed

A major benefit of a Chapter 11 bankruptcy is that a debtor is allowed to keep all or a portion of its assets in Chapter 11. In contrast, under Chapter 7, a debtor can retain only a limited amount of exempt property. Under the U.S. Bankruptcy Code, businesses are not allowed to exempt property.