Chapter 11 bankruptcy is one of the more involved forms of
bankruptcy that is available. In filing
Chapter 7 bankruptcy, a trustee is appointed to liquidate non-exempt properties
and pay off the creditors. This is not
the case when it comes to Chapter 11.
When a Chapter 11 petition is filed a trustee can still be
appointed, however their properties are not immediately sold. By filing this petition the debtor is granted
automatic stay, which means the creditors have to ‘back off’ on attempting to
collect.
The main difference between a Chapter 7 and a Chapter 11 is
that in a Chapter 11 the company is still hoping to stay in business, they
simply need a more ‘lax’ payment plan in order to recoup. In Chapter 11 there is a reorganization plan
that is set.
A reorganization plan gives the debtors the ability to get
their financial affairs in order. They
may negotiate small payment plans, or even lesser interest rates in order to
help the debtor to pay back their debts.
With that being said, some creditors have the ability to disapprove or
reject the plan. Those creditors that are considered to be ‘fully impaired’
will reject a reorganization plan.
If a plan is not worked out with the creditors and
subsequent plans are rejected, the debtor may be forced to change into a
Chapter 7 bankruptcy plan.
While Chapter 7 bankruptcy is typically called liquidation
bankruptcy, it is Chapter 11 that is known as reorganizational bankruptcy. Most creditors prefer this type of
bankruptcy, because in the former there is a good chance they will not get
their money back. Chapter 11 may be a
slow process, but it ensures that everyone is on the same page when it comes to
paying back debts that have been acquired.
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