There are different types of bankruptcy that a business can apply for but Chapter 11 bankruptcy is specially designed for companies having problems with their finances. This type of bankruptcy is ideal for corporations which want to continue their operations and at the same time go through reorganization or restructuring of their business to be able to pay creditors and also generate income.
Chapter 11 bankruptcy is considered to be the most complicated type of bankruptcy and this is the reason a bankruptcy attorney is needed. Filing for chapter 11 bankruptcy is time consuming and it goes through comprehensive process with its paperwork. Aside from declaring the companies assets, properties and debts, reorganization plan should also be prepared.
The bankruptcy court will oversee the operations of the business through their appointed bankruptcy trustee. When a company files for chapter 11 bankruptcy, the debtor is still given rights on the business. They will act as a debtor in possession which means that the debtor still have some rights to acquire the earnings of the business but would still prioritize to pay off their debts. The bankruptcy court will allow the debtor to cancel and reject contracts provided that it will be helpful with the business operations.
Chapter 11 bankruptcy protects the debtor from harassments and collection of creditors. The creditors, on the other hand, are assured of payments that they will receive from the debtor. This will be included in the restructuring plan which will be approved by the bankruptcy court. The reorganization and restructuring plan should be based on bankruptcy laws which protect both debtor and creditors. The plan can be reviewed by the creditors and they have the right to inform the bankruptcy court if the plan is not favorable for them.
Big companies in US such as Lehman Brothers Holdings, Inc, Washington Mutual, WorldCom Inc. and General Motors Corporations, has filed for Chapter 11 bankruptcy. Filing for this type of bankruptcy will help the company or business which wants to start fresh with its finances and clear their debts. The corporation can improve their business operation and transaction because of the restructured plan formulated through Chapter 11 bankruptcies.
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