2. What is Bankruptcy?
» Bankruptcy is a federal court process that
helps individuals and businesses repay their
debts under the protection of the bankruptcy
court (Chapter 13 Bankruptcy) or wipe their
debts out altogether (Chapter 7 Bankruptcy).
» When you file for bankruptcy, an automatic
stay goes into effect which prohibits your
creditors from taking action to collect the debt
without the approval of the court
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3. » There are two basic types of bankruptcies:
» liquidation or reorganization.
» In the US, liquidation is known as Chapter 7
Bankruptcy, which refers to the chapter of the
bankruptcy law that allows your assets to be
sold off (liquidated) to pay creditors.
» Reorganization is most commonly known as
Chapter 13 Bankruptcy.
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4. » Chapter 11 is a chapter of the United
States Bankruptcy Code, which permits
reorganization under the bankruptcy laws of
the United States.
» Chapter 11 bankruptcy is available to
every business, whether organized as
a corporation or sole proprietorship, and to
individuals, although it is most prominently
used by corporate entities.
5. » In contrast, Chapter 7 governs the process of
a liquidation bankruptcy, while Chapter
13 provides a reorganization process for the
majority of private individuals.
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6. » Chapter 11 is one of the chapters of the US
Bankruptcy Code that provides protection to
debtors.
» Chapter 11 bankruptcy is almost exclusively
used by businesses due to the expense and
complexity of the process.
» Chapter 11 bankruptcy is appropriate when a
business needs to restructure the debts it has
and reorganize its finances so it can stay
open.
7. » As an alternative to Chapter 7, which would
require a business to liquidate, Chapter 11
allows a business to keep many of its assets.
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8. » Chapter 11 bankruptcy involves the financial
reorganization of a business, which may be a
complex and extensive process.
» As soon as a company files for Chapter 11,
all collection activities must cease. This stay
will remain in effect throughout the
bankruptcy process.
9. » The process of Chapter 11 begins with the
creation of a plan.
» The debtor or debtors involved may propose the
repayment and reorganization plan or, after a
period of time (usually around 120 days), the
creditors may propose a plan as well.
» The plan may allow the debtor to cancel
contracts.
» The value of shares owned if the stock is publicly
traded may also be cancelled, leaving the
shareholders with nothing.
10. » Any plan that is created must be approved by
the creditors, and if there are multiple plans
sometimes the creditors are given the
opportunity to vote on the plan that is put into
place.
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11. » A trustee will be involved throughout the
reorganization process as well.
» The trustee will help to ensure that priority
claims are paid, that assets are managed
properly, and that the reorganization proceeds
as it should.
» If the owners are not managing the assets
properly, the trustee may take more control or
someone else may be put in charge of the
assets.
