Bankruptcy

Lesson 17: Eligibility for Chapter 11

Feeling overwhelmed by bankruptcy law? Don't worry, we've got you covered. Let's dive into the essentials of Chapter 11 with some humor to make it digestible.

Chapter 11 of the Bankruptcy Code is designed primarily for reorganization. This chapter is available to businesses and individuals who meet certain criteria. Unlike other chapters, Chapter 11 does not impose a strict limit on the amount of debt and is often used by corporations looking to restructure their debts while continuing operations.

Who Can File for Chapter 11?

Any individual or business entity, including corporations, partnerships, and sole proprietorships, can file for Chapter 11 if they are not restricted by specific statutory exclusions. According to Section 109 of the Bankruptcy Code:

An entity may be a debtor under Chapter 11 of this title notwithstanding any of the following: (1) A debtor may not be a railroad that is not authorized to operate as such. (2) A debtor may not be a domestic insurance company or bank.

Case Study: Large Corporations Filing for Chapter 11

Need some light reading? Check out The Bankruptcy Kit by David L. Gantz for more in-depth case studies.

Many large corporations have filed for Chapter 11 bankruptcy, such as General Motors and United Airlines. This allows them to continue operations while they reorganize their debts.

Note: Chapter 11 cases often involve complex negotiations and require approval of a reorganization plan by the creditors and the court.

Key Provisions of Chapter 11

Automatic Stay: Filing for Chapter 11 triggers an automatic stay, which halts actions by creditors to collect debts.
Debtor in Possession: In most cases, the debtor remains in control of their business operations and assets as a "debtor in possession." Learn more about the Automatic Stay Provision.
Reorganization Plan: The debtor must propose a reorganization plan outlining how they intend to repay creditors over time.

Process of Filing for Chapter 11

The process of filing for Chapter 11 involves several steps:

Filing the bankruptcy petition
Submission of schedules and statements
Meeting of creditors (341 meeting)
Developing and submitting a reorganization plan
Confirmation of the plan by the court

graph TD A["File Petition"] --> B["Automatic Stay"] B --> C["Meeting of Creditors (341 Meeting)"] C --> D["Develop Reorganization Plan"] D --> E["Submit Plan to Court"] E --> F["Court Plan Confirmation"]

Advantages and Disadvantages

Chapter 11 offers several advantages and disadvantages:

Advantages:
- Debtors remain in control as "debtors in possession."
- Flexible repayment plans.
- Opportunity to restructure and continue operations.
Disadvantages:
- Complex and costly process.
- Requires significant time and effort to negotiate with creditors.
- Potential for liquidation if reorganization fails.

Conclusion

Chapter 11 is a powerful tool for businesses and individuals looking to reorganize their debts while continuing to operate. It provides a structured framework for negotiating with creditors and developing a feasible plan for repayment.

To better understand eligibility for other types of bankruptcy, see our lessons on Means Test for Chapter 7 and Debt Limits for Chapter 13.