Chapter 11

Chapter 11 bankruptcy is available to any business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. Whereas, Chapter 7 governs the process of a liquidation bankruptcy, and Chapter 13 provides a reorganization process for the majority of private individuals.

When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11.

In Chapter 7 the business ceases operations, a trustee sells all of its assets, and then distributes the proceeds to its creditors. Any residual amount is returned to the owners of the company. In Chapter 11, in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court.

This Chapter is by and large used for business bankruptcies and restructuring. It not considered as a viable option for individual consumers given that it is far more complex and expensive to pursue. Chapter 11 permits businesses an opportunity to reorganize themselves, allowing them a chance to restructure their debt and get out from beneath specific troublesome deeds and agreements. Normally, a business is permitted to carry on functioning at the same time as it is in Chapter 11 under the watchful eye of the Bankruptcy Court and its appointees.

Another option that can be utilized under is Chapter 11 is to liquidate the assets of the business and reimburse the creditors from the realization. Chapter 11 bankruptcy is almost certainly the most flexible of all the chapters, and the same time the hardest to generalize. Its flexibility makes it generally more expensive to the debtor. However, the success rate of Chapter 11 reorganizations is miserably low, estimated at only 10% or less. Therefore, filing for Chapter 11 Bankruptcy should only be used as a last resort.

A much better solution is Debt Settlement. Often referred to as Debt Negotiation, Debt Settlement is a direct and ambitious approach to debt reduction and it is best suited for individuals that have considered filing for Bankruptcy protection.

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