Chapter 11 Bankruptcy FAQ

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What is Chapter 11?

Chapter 11 bankruptcy is a relief chapter geared toward businesses and corporate partnerships. Chapter 11 involves a reorganization plan, designed to repay a company's creditors over time. Unlike a Chapter 7 filing (which dissolves and liquidates a business), Chapter 11 allows for the possibility of recovery and continued operation. At the time of filing Chapter 11, an automatic stay is provided.

What is "automatic stay"?

Upon filing Chapter 11, "automatic stay" is granted, which legally halts creditor actions including collection, foreclosure, and repossession. Automatic stay is temporary, and lasts only until Chapter 11 discharge is granted or denied, or the case is dismissed. There are exceptions to automatic stay. For example, a creditor may be granted a filed Motion for Relief. Other exceptions that may preclude automatic stay include criminal court proceedings against the debtor, various government actions against the debtor, etc.

Who controls the business, after Chapter 11 is filed?

As the debtor, you will typically remain in full control of the operation of your business after filing for Chapter 11. The debtor will generally assume additional responsibilities under the status of "Debtor in Possession" (DIP). Following Chapter 11 confirmation, a trustee may be appointed by the court to oversee or assume control of the corporation, such ensuing roles vary depending on circumstances and rulings specific to each case.

Who determines acceptance of a Chapter 11 plan?

Acceptance is determined by a group of interested creditors (who are not considered "company insiders"), selected by a Trustee. Plan acceptance must be supported by a majority vote within this group.

After filing Chapter 11, is Chapter 7 still an option?

Should recovery via Chapter 11 prove unfeasible, Chapter 7 conversion generally remains on the table, but is subject to various restrictions.

Can an individual file for Chapter 11 bankruptcy?

Technically, yes. However, individual Chapter 11 filings are very complex and expensive (compared to alternative Chapters), and make sense only in very rare cases (usually involving very wealthy individuals). Individuals considering Chapter 11 should consult their attorney for further information.

Disclaimer: The content of this page is intended for informational purposes only, and does not constitute legal advice/counsel.

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