Definition

• Chapter 11 bankruptcy is a financial tool that allows businesses and individuals with large amounts of debt to restructure their finances under a court's protection from creditors and debt collectors. Under a Chapter 11 bankruptcy filing, debtors typically retain their assets and businesses can continue operation, though the court may supervise that operation and any restructuring activity with the creditors' interests in mind.
  
  

Initiation

• Businesses or individuals may either voluntarily initiate Chapter 11 bankruptcy protection or creditors may force the debtor into a bankruptcy case. Debtors or creditors initiate the bankruptcy proceedings by petitioning the court, and courts typically order the debtor to provide information on assets and liabilities, income and expenses, miscellaneous financial affairs, and contracts and leases. As of February 2011, courts charge a $1,000 filing fee and a $39 administrative fee to begin Chapter 11 bankruptcy proceedings, though the court may allow the debtor to spread this amount over as many as four installments.
  
  

Process

• Once a court formally begins a Chapter 11 bankruptcy case, the debtor must typically file both a plan of reorganization and a written disclosure statement. The plan of reorganization explains how a business debtor intends to reorganize the company's operations to sufficiently increase revenue or reduce expenses in order to repay some or all outstanding debts. In an individual Chapter 11 case, the filings must outline how the debtor will forfeit all disposable income in order to repay creditors. The disclosure statement provides financial information necessary for creditors to make an informed decision about whether the debtor can effectively repay outstanding balances under the plan. If the creditors agree with the reorganization plan, they formally approve the plan, the court holds a confirmation hearing and the court trustee oversees its implementation. If the creditors do not approve the plan, the court will evaluate the creditors' disputes and, if necessary, require the debtor to submit an amended reorganization plan.
  
  

Considerations

• Although both businesses and individuals can file, the U.S. Securities and Exchange Commission notes that Chapter 11 bankruptcy is commonly associated with corporate debtors. Corporations may continue to sell and trade stock while under Chapter 11 protection, though stock prices typically fall below the threshold for listing on major stock exchanges. Individuals usually file for protection under Chapter 7 or Chapter 13 of the bankruptcy code, and bankruptcy experts with the Moran Law group notes that Chapter 11 provides considerably more flexibility than other bankruptcy chapters.