Some Essential Information You Need To Know

A Chapter 11 bankruptcy is filed by businesses and is quite similar to a Chapter 13. A Chapter 11 is available for individuals, but it is generally used by businesses to reorganize their debts and dealings so that they can be more financially solid.

When a troubled business is unable to service its debt or pay its creditors, they can file with a federal bankruptcy court for protection under either a Chapter 7 or a Chapter 11 bankruptcy.

In a Chapter 7 bankruptcy, the business must cease operation and a trustee will sell all its assets and distribute the proceeds to the business’s creditors ratably in accordance with statutory priorities.

A Chapter 11 filing, on the other hand, is usually filed in 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 along with its contracts so that the company can make a fresh start.

Often, if the company’s debts exceed its assets, then at the completion of the bankruptcy, the company’s owners or stockholders all end up with nothing. All their rights and interests are terminated and the company’s creditors end up with ownership of the newly reorganized company in the hopes that it will eventually succeed financially as compensation for their losses.

So, in general, an individual bankruptcy will be under a Chapter 7 or Chapter 11. It’s a big decision for you to make, but sometimes, it’s the only way you can “get out from under” and begin anew.

Filed under: Bankruptcy