Chapter 11 is a bankruptcy chapter available to individuals, sole proprietors and corporations who want to reorganize and repay debts. Chapter 11 can also be used by large farming organizations that do not qualify under Chapter 12; a bankruptcy chapter exclusively for family farmers and fishermen.
Chapter 11 requires debtors to carry a minimum debt load of $336,900 of unsecured debts and a maximum of $1,010,650 in secured debts. Debtors filing for Chapter 11 bankruptcy are required to submit a proposed repayment plan with creditors during their 341 creditor meeting. This meeting usually takes place within 30 to 90 days after submission of the bankruptcy petition.
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The business is permitted to continue operations during the debt restructure phase of Chapter 11. Referred to as 'debtor in possession', this period grants debtors with the rights of a bankruptcy trustee. This status allows the debtor in possession to sell or trade business assets without obtaining court permission.
The debtor in possession is also allowed to obtain unsecured and secured credit to continue business operations. Chapter 11 bankruptcy provides 'avoidance powers' to debtors. Avoidance powers are quite complex and generally require the services of a bankruptcy lawyer to ensure debtors adhere to bankruptcy laws.
Avoidance powers encompass property transfers made within ninety days prior to submission of chapter 11 bankruptcy petitions. When transferred property allows creditors more than they are entitled to, the debtor in possession has the right to void the transfer.
Large corporations possessing millions of dollars worth of assets generally require a team of bankruptcy attorneys to ensure they comply with state and federal laws and file required documents in a timely fashion.
Chapter 11 debt reorganization plans are generally broken down by creditor classification. Loans which are secured by real estate are usually repaid over an extended period of time. Unsecured loans are reorganized based on the anticipated life cycle of the collateral. For example, loans for office equipment might be repaid over five years, while loans for machinery would be repaid over ten years.
Bankruptcy repayment plans are confirmed through the court using a three-step process. First, debtors are required to develop a repayment plan. Secondly, creditors must accept the plan. Third, the plan is presented to a judge during a confirmation hearing. The judge reviews the repayment proposal to ensure debtors possess the financial means to follow through on their plan. Upon confirmation of Chapter 11, debts are discharged with the exception of non-dischargeable debts.
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