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What should I expect when filing for Chapter 11 bankruptcy?


If you have considered different bankruptcy options for your business, and may be considering Chapter 11 reorganization bankruptcy, you may wonder what to expect from the process. The initial process is similar to any bankruptcy; once the filing party has filed for bankruptcy, an automatic stay is put in place to prevent any further creditor collection actions while the bankruptcy process progresses.

In particular, a Chapter 11 bankruptcy is a business bankruptcy option that allows the business to reorganize its debts and continue to operate, unlike a Chapter 7 liquidation process. As a consequence, of course, the processes are different. The Chapter 11 option allows the business to continue to operate during the bankruptcy process while developing a reorganization plan for debts. Approximately 20 to 40 days following the filing of the bankruptcy petition and submission of required schedules, the first creditor meeting is held. Questions will be asked concerning the company's assets and liabilities and income and expenses.

A creditor's committee may be formed, including the company's 7 largest unsecured creditors, to develop a reorganization plan for the debts of the business. For a period of time following the bankruptcy filing, however, the filing party has the exclusive right to file a reorganization plan with the bankruptcy court. The filing party must also file a disclosure statement and the financial condition of the company filing for Chapter 11 bankruptcy will be analyzed. Creditors are divided into classes and must vote on the reorganization plan and the plan must be accepted as it applies to each class. If the court evaluates the reorganization plan and determines it is fair and equitable, it can approve the reorganization plan.

The reorganization plan allows the business to repay creditors over a specified period of time, and any prior debts not addressed in the plan are discharged and the filing party must then abide by the reorganization plan. The bankruptcy process can be complicated, and getting it right is important to allowing a once profitable business to return to profitability. For this reason, a thorough understanding of the process is essential when considering business bankruptcy.

Source: Smallbusiness.findlaw.com, "What to Expect When Filing for Bankruptcy," Accessed Aug. 30, 2016

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