Chapter 11 bankruptcy is a federal bankruptcy plan designed generally for assisting businesses with reorganizing their corporate or partnership structure in order to pay creditors back over time. It is seen as a temporary measure to help the business stay in operation. These are generally called “reorganization” bankruptcies rather than “liquidation” bankruptcies.

As with most bankruptcies, Chapter 11 bankruptcy begins by filing with a bankruptcy court. The company itself may file this petition, or certain creditors may file it if the company’s finances meet certain criteria. Documents that need to accompany the petition include the company’s accounting statements of assets, liabilities, income and expenditures, schedules of executory contracts and leases, and a general statement of financial affairs. Additionally, Chapter 11 bankruptcy generally requires a written disclosure statement as well as a plan of reorganization.

The proceedings are usually overseen by a trustee who serves as the mediator between the debtor and creditors. Chapter 11 may be complicated in cases involving corporate ownership rather than a sole proprietorship. In addition to his or her business assets, a sole proprietor will have his or her personal assets at risk for reorganization during this process. However, a corporation that is owned by its shareholders will only have its business assets at risk during Chapter 11 bankruptcy.

Those interested in attempting to reorganize their debt while under federal protections may benefit from consulting with a lawyer. A bankruptcy lawyer may be able to help with filing all the necessary paperwork. In addition, a lawyer may be able to provide representation in meetings with the trustee and creditors.

Source: United States Courts, “Reorganization Under the Bankruptcy Code“, September 08, 2014