Chapter 11 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.
The bankruptcy court assigns a U.S. trustee who will in turn appoint one or more committees to stand for the wellbeing of creditors and stockholders. These committees will work in association with the company to build up a strategy of reorganization to get out of debt.
The strategy has to be agreed upon by the creditors, bondholders, and stockholders and authenticated by the court. On the other hand, even if creditors or stockholders vote to disallow the plan, the court can ignore the vote and still confirm the plan if it finds that the plan is beneficial to its creditors and stockholders.
This Chapter of the Bankruptcy Code is available to a business going through grave financial complexity but that can be made viable, if its debt repayments can be lessened or deferred. The business can be a large corporation, partnership, or sole proprietorship.
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. It is known that a Chapter 11 liquidation frequently achieves a higher realization for the creditors than a Chapter 7 bankruptcy.
Small business owners with a debt of less than $2000 can ask to be elected and treated as a ""small business"". By doing so, the government would put the case on a fast track and would be treated differently than a regular Chapter 11 case. The debtor would no longer require a separate hearing to approve the disclosure statement, it may be joint with the confirmation hearing. Furthermore, it is not mandatory to appoint a creditor's committee.
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