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 any business, whether organized as a corporation
or sole proprietorship, or individuals with unsecured debts
of at least $336,900.00 or secured debts of at least $1,010,650.00,
although it is most prominently used by corporate entities.
In contrast, Chapter 7 governs the process of a liquidation
bankruptcy, while Chapter 13 provides a reorganization process
for the majority of private individuals with unsecured debts
of less than $336,900.00 and secured debts of less than $1,010,650.00
as of April 1, 2007.
When a troubled business is unable to service its debt or pay
its creditors, the business or its creditors can file with a
federal bankruptcy court for protection under either chapter
7 or chapter 11. In chapter 7, the business ceases operations
and a trustee sells all of its assets and distributes the proceeds
to its creditors. A chapter 11 filing is usually an attempt to
stay in business while a bankruptcy court supervises the "reorganization" of
the company's contractual and debt obligations. The court can
grant complete or partial relief from most of the company's debts
and its contracts, so that the company can make a fresh start.
Sometimes, if the business's debts exceed its assets, then at
the completion of bankruptcy the company's owners all end up
without anything; all their rights and interests are ended and
the company's creditors are left with ownership of the newly
reorganized company.
RESOURCES: Chapter 11 Bankruptcy
United States Bankruptcy Courts
U.S. Courts: Periodicals: Bankruptcy Basics
Cornell University Law School: Bankruptcy Overview - Legal Information Institute
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