Chapter 11 Bankruptcy

See also: Chapter 11 Section of our Washington State Bankruptcy FAQ

Business Debt Reorganization Planning

Chapter 11 bankruptcy is an option for corporate entities or parterships, including home businesses and small business owners. This chapter requires proposal and acceptance of a debt re-organization plan, typically designed to keep your business operational while repaying creditors over time. Chapter 11 may provide the debt relief needed for survival, without the finality of an alternative Chapter 7 declaration, which requires the business to be dissolved (and liquidated).

In most cases, the debtor company (or "debtor in possession") is allowed to maintain control of their daily operations, but must adhere to any guidelines established by a bankruptcy court. Adherence is overseen and enforced by a US Trustee or Examiner appointed by the court.

The plan of reorganization is usually reviewed and approved by a creditor committee, selected by the appointed US Trustee. This committee plays a significant role throughout the Chapter 11 process, and is usually comprised of the top 20 creditors not considered "company insiders". The assistance of an experienced bankruptcy attorney can be crucial in establishing a re-organization proposal that is favorable to future company viability, and subsequently providing legal support for acceptance of this proposal.

Benefits of Chapter 11

Flexibility; allows business to maintain control and continue operations

Automatic stay, stopping most lawsuits and collection activity by creditors

Potential for release from certain contracts, including labor union contracts, operating contracts, supply contracts, and real estate leases

May provide advantage over competitors in some cases, as a result of stays in creditor repayment

Chapter 7 eligibility is maintained, should outlook continue to decline

Drawbacks of Chapter 11

Relatively high filing costs, depending on size and scope of applicant business

Potential stock exchange de-listing for publicly-held corporations

Low statistical probability of company survival (approximately 10%)