Chapter 11 Business Bankruptcy

Business Reorganization

Chapter 11 Business Bankruptcy
Chapter 11 Business Bankruptcy. Peter Dazeley/Getty Images

What is Chapter 11 Business Bankruptcy? 

Chapter 11 Business Bankruptcy is a legal process by which a business may declare bankruptcy but continue to operate under the direction of a court-appointed trustee. This process is called "reorganization," because the trustee reorganizes the business to be more efficient and to be able to pay the creditors of the business. It's kind of like getting a "jump start" for your business, to bring new life into it.


What Happens to Business Debts in Chapter 11? 

The bankruptcy court may also exempt the business from paying all or part of its debts. Chapter 11 bankruptcy is usually sought and granted in the case where the value of the business is greater than the sum of its assets; in other words, the business has a significant amount of goodwill as a "going concern" which would be lost if the business were sold or liquidated.

What is the Process for Chapter 11 Bankruptcy? 

The bankruptcy process begins with your meeting with a bankruptcy attorney, who can help you decide which form of bankruptcy is best. You will need to file bankruptcy in the state where you are doing business, because bankruptcy is a state-driven process. 

A petition is the formal beginning of the bankruptcy process. The petition includes an intent to file a plan for reorganization. Typically, your business will be assigned a trustee, who will guide the business through the reorganization process.


A disclosure statement is also required at the beginning of the bankruptcy process. The US Courts website says this disclosure:  

must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor's plan of reorganization. 

The trustee oversees the operations of the business during a Chapter 11 bankruptcy, holds a meeting of creditors, and receives required reports on monthly income and expenses.

The Automatic Stay and Chapter 11 

An automatic stay is set in place at the beginning of Chapter 11. This stay prevents judgments, collection activities, foreclosures, and repossessions against the business during the process. The stay gives the debtor company a breather and allows time for negotiations on the company's behalf to resolve financial difficulties. 

What happens at the end of Chapter 11 bankruptcy? 

In many cases, a business may re-emerge from Chapter 11 and continue to operate normally. In other cases, the reorganized business can be sold after some period of time.

Chapter 11 is available to any type of business, including sole proprietorships, Limited Liability Companies (LLCs), and corporations.

For more details, see this article about Chapter 11 bankruptcy basics on the U.S. Courts website. 

Bank to Bankruptcy Overview


Disclaimer: The content in this article and on this website is for informational purposes only. The author is not an attorney or tax professional. Every business bankruptcy situation is different, and bankruptcy laws and regulations. If you are considering business bankruptcy, find a bankruptcy attorney and financial advisors who can help you with this process.