What is a Chapter 11 Bankruptcy?

Posted on May 06, 2013 By Amy K. Tanner

Amy TannerMany clients that I meet with regarding bankruptcy ask me “What is a Chapter 11 bankruptcy case?”   A Chapter 11 bankruptcy allows an individual or a business to reorganize debts while being protected from creditors.

Filing Chapter 11 Bankruptcy

The filing of a Chapter 11 petition automatically stays all foreclosure, collections actions, civil litigation and creditor actions of any kind.  The debtor must file a voluntary petition to commence a Chapter 11 case including the names and addresses of its creditors and owners, a description of its property and assets, and its financial condition.

Who can File Chapter 11

Anyone except a government agency, estate, nonbusiness trust, stockbroker, commodity broker, insurance company, bank or SBA-licensed small business investment company can file under Chapter 11.   The Chapter 11 filing fee is $1213.00 in addition to a quarterly fee paid to the Bankruptcy Administrator’s office based on the amount disbursed during each quarter by the debtor.  The Bankruptcy Administrator’s office for the Northern District, Northern Division of Alabama provides a schedule for such quarterly fees.

A Chapter 11 debtor is known as a “debtor-in-possession” after the petition is filed.  Generally, no trustee is appointed by the Court and the debtor-in-possession is responsible for filing monthly operating reports, paying the quarterly fees, and preparing and filing its plan of reorganization.  A trustee may be appointed by the bankruptcy court however if requested by the bankruptcy administrator or creditors.   If the debtor is a business, it may continue to operate but must comply with the requirements of the Bankruptcy law and courts to do so.

After the filing of the voluntary petition, the debtor must prepare and file a disclosure statement informing the court and its creditors of the history or background of the debtor and its business, its current financial condition, and its plan for reorganization.  This statement acts as a tool to inform the creditors of the causes of the bankruptcy and the debtor’s plans to reorganize its business and deal with its debts and taxes.

After approval of the disclosure statement by the court, the debtor files a Chapter 11 plan that is then voted on by the creditors.   Upon acceptance by the creditors and approval by the court, the plan is “confirmed”.   The confirmation of the plan terminates the bankruptcy estate and title to property that is retained reverts back to the reorganized debtor.  The debtor and all parties are bound to the terms of the confirmed plan.  It is, in essence, a new agreement for the rehabilitation of the debtor and the handling of its debts.

A Chapter 11 case allows you to reschedule your debts, possibly cancel leases and other executor contracts, and sell, with court permission, nonproductive assets while under bankruptcy protection.   A Chapter 11 case could be an excellent tool for a viable business or an individual that exceeds the debt limits under Chapter 13 to restructure debts and move forward.

If you have a question regarding Chapter 11 bankruptcy or would like to schedule a free initial consultation with one of our licensed attorneys, please feel free to contact one of our conveniently located offices.