Question:  What is a Chapter 11 bankruptcy?

Answer:  A Chapter 11 bankruptcy is the reorganization chapter most commonly used by businesses, but also available to individuals. A business that files a Chapter 11 typically remains in control of its assets and operations, although the court may order the appointment of a trustee to take possession and control of the business under rare circumstances.

Question:  What are some of the benefits of filing a Chapter 11 bankruptcy?

Answer:  Upon the filing of a Chapter 11 bankruptcy, creditors are prohibited from pursuing any collection actions against the business filing bankruptcy unless authorized by the court. As a result, a Chapter 11 gives a business a breathing spell to reorganize its operations without the pressure of collection from creditors. Certain actions are available to the business in Chapter 11 to help it improve profitability and become a more leaner, efficient company.

Question:  How does a Chapter 11 bankruptcy successfully conclude?

Answer:  The debtor in bankruptcy typically prepares a plan of reorganization that outlines how creditors will be paid on their debts that arose prior to the bankruptcy filing. Creditors have the opportunity to vote on whether to accept or reject a plan. If creditors vote to accept a plan, the plan is confirmed by the court.

Question:  Are there alternatives to filing a Chapter 11 bankruptcy proceeding for businesses with financial problems?

Answer:  Yes. A bankruptcy filing is typically a last resort. Under certain circumstances, a business may reorganize or undergo a workout with creditors outside of bankruptcy.

Question:  Do unsecured creditors have any rights in a Chapter 11 bankruptcy?

Answer:  Yes. Typically, the creditors holding the largest unsecured claims against a business debtor (typically, vendors who provide goods or services on open account, etc.) are invited to join an unsecured creditors' committee. The committee may hire experienced bankruptcy counsel to represent the interests of unsecured creditors during the bankruptcy proceeding and have the bankruptcy estate pay for the committee's legal fees.

Question:  What is a Chapter 7 bankruptcy?

Answer:  Chapter 7 is the liquidation chapter of the bankruptcy code. Individuals may file Chapter 7 and receive a discharge of all of their debts. A trustee is appointed in Chapter 7 to investigate the financial affairs of the debtor and collect and sell property owned by the debtor, if any that is not exempt. Businesses that go out of business and liquidate also file under Chapter 7.

Question:  What is a Chapter 13 bankruptcy?

Answer:  Chapter 13 generally permits individuals to keep all of their property while repaying creditors out of their future income. The Debtor pays a Chapter 13 trustee each month who in turn pays creditors a certain portion of their claims over a three to five year period.