Chapter 11 is frequently known as the reorganization chapter of the bankruptcy code because it allows a debtor to reorganize financial obligations while retaining assets, generally through the sale of certain assets to pay down debt and refinance existing debts.

1. ALL YOU NEED TO
KNOW ABOUT CHAPTER
11 BANKRUPTCY
By Suzzanne Uhland
Image courtesy of
Ralph Daily
at Flickr.com

2. Bankruptcy in the United States is governed under the United States
Constitution, which authorizes Congress to enact "uniform Laws on
the subject of Bankruptcies throughout the United States." Congress
codified Bankruptcy in Title 11 of the United States Code and is
commonly referred to as the "Bankruptcy Code". Some law relevant
to bankruptcy is found in other parts of the United States Code. For
example, bankruptcy crimes are found in Title 18 of the United
States Code. Tax implications of bankruptcy are found in Title 26 of
the United States Code, and the creation and jurisdiction of
bankruptcy courts are found in Title 28 of the United States Code.
While bankruptcy cases are filed in United States Bankruptcy Court,
and federal law governs procedure in bankruptcy cases, state laws
are often applied when determining property rights. For example, law
governing the validity of liens or rules protecting certain property
from creditors, may derive from state law or federal law. Because
state law plays a major role in many bankruptcy cases, it is often
unwise to generalize some bankruptcy issues across state lines.
Bankruptcy in General

3. If you are deciding between chapter 7 or 11 in the Bankruptcy Code,
you can review this information Suzzanne Uhland presents in this
article:
http://www.slideshare.net/suzzanneuhland/how-to-decide-if-7-or-11-is-
the-right-bankruptcy-choice
Bankruptcy in General
Image courtesy of
Chris Potter at
Flickr.com

4. This chapter of the Bankruptcy Code generally provides for
reorganization, usually involving a corporation or partnership. A
chapter 11 debtor usually proposes a plan of reorganization to
keep its business alive and pay creditors over time. People in
business or individuals can also seek relief in chapter 11.
Chapter 11 is frequently known as the reorganization chapter of
the bankruptcy code because it allows a debtor to reorganize
financial obligations while retaining assets, generally through
the sale of certain assets to pay down debt and refinance
existing debts.
It grants a debtor what is known as an automatic stay from the
enforcement actions of creditors. This precludes creditors from
continuing collection efforts, from bringing a lawsuit, or from
filing liens against property or foreclosing on property. In
Chapter 11, a debtor generally remains in control of their estate.
A trustee may be appointed for causes like fraud, dishonesty,
incompetence or gross mismanagement, or if such appointment
is in the best interest of creditors.
Chapter 11 of the Bankruptcy Code

5. A plan of reorganization provides debtors with important
tools for rearranging financial affairs. A debtor may also
refinance existing loans including increasing the time in
which it must be repaid, decreasing the interest rate if
interest rates have declined since the loan was entered
into, or changing/removing other arduous terms. Through
Chapter 11, as with other bankruptcy chapters, a debtor
can also sell an asset free and clear of all liens. The ability
to sell an asset free and clear of liens can garner a greater
sale price as purchasers are assured that the property is
unencumbered and the purchaser is subject to less liability.
Chapter 11 of the Bankruptcy Code

6. Either the debtor or its creditors may file a petition for Chapter
11 bankruptcy protection, the latter route referred to as an
involuntary petition. Once the petition is filed with the U.S.
Bankruptcy Court, the case begins and an automatic stay of all
collections actions is put into effect. This means creditors may
not pursue existing or new collection activities for unpaid debts
unless the court issues a modification to the stay. This provides
an opportunity for the debtor to draft a reorganization plan and
negotiate more feasible repayment terms without worrying about
its debt obligations. After the petition is filed, the business
continues about its affairs without interruption. Meanwhile,
under the supervision of the bankruptcy court, the debtor turns
its attention to figuring out a repayment plan for its creditors. As
with other types of bankruptcy, repayment amounts typically are
much lower than the original debt totals.
Process of Filing a Petition

7. Each class of creditors are entitled to vote to accept or reject your
proposed treatment of them in your bankruptcy plan. After the initial
hearings, the court will authorize you to start soliciting votes. Ideally,
you get a vote of acceptance from every creditor and the judge
approves the plan on this basis. You will likely have to negotiate
various terms of treatment with the individual creditor to obtain
acceptance so be prepared to compromise. In the event you have a
creditor who rejects the plan, the creditor’s non-acceptance may be a
major impediment to court approval of your plan. If all negotiations fail,
you will have to ask the judge to approve your case over the objection
of the non-accepting creditor. As long as you successfully negotiate the
treatment of each participating creditor in your bankruptcy, you should
be able to restructure your individual or business debt in a way that
allows you to emerge from bankruptcy lean and profitable.
For more information about Bankruptcy Suzzanne Uhland suggests:
http://www.uscourts.gov/services-forms/bankruptcy
Succeeding in Chapter 11
Bankruptcy