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Submitted by: Simon Volkov

Chapter 11 bankruptcy offers protection from creditors to individuals and companies carrying substantial amounts of debt. Often referred to as ‘reorganization bankruptcy’, Chapter 11 gives debtors the opportunity to reorganize debt to regain financial stability.

When debtors make use of Chapter 11 bankruptcy they are permitted to retain personal and business property including residential and commercial real estate, business equipment, and automobiles.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act was implemented to curb bankruptcy abuses. BAPCPA requires all debtors to participate in credit counseling; file a proposed payment plan through the court; and acquire bankruptcy confirmation through the creditor committee established by the U.S. Trustee.

Filing a Chapter 11 petition is more expensive and time intensive than other bankruptcy chapters. Debtors must comply with rigid guidelines and payment demands to prevent failing out of bankruptcy. If this occurs, debtors lose protection from the automatic stay and creditors are granted permission to repossess property or file claim to obtain a judgment.

It has been reported that less than 10 percent of people that file Chapter 11 fulfill their financial obligations. The low success rate is due in part by the fact that Chapter 11 is primarily used by large corporations and extremely wealthy people. Some of the more prominent entities that have utilized this bankruptcy chapter include Lehman Brothers, Washington Mutual bank, and Reader’s Digest.

Once Chapter 11 petitions are filed through the court they need to be confirmed by the U.S. Trustee creditor committee. Members of the committee cast votes to grant or deny proposed payment plans. Petitioners are required to file a disclosure statement that documents data surrounding the types of assets owned, outstanding liabilities, and financial projections.

Disclosure statements are vital for acquiring bankruptcy confirmation. The information supplied in statements are necessary for creditor committees to make educated decisions about the debtor’s ability to repay debts through restructuring.

Upon confirmation of the Chapter 11 petition the Committee is charged with watching over debtors’ finances until outstanding financial obligations are repaid. Corporate entities are obligated to pay creditors prior to providing monetary distributions to shareholders.

Even though Chapter 11 is one of the most complicated processes it is considerably less rigid than most bankruptcy chapters. It offers flexible options that aren’t available with personal bankruptcy and gives debtors more options for restructuring debts.

Under BAPCPA guidelines, individuals and entities that file Chapter 11 are required to hire a qualified bankruptcy attorney. Companies and people that believe this is their best option will find it beneficial to become knowledgeable about the process and take time to review the advantages and disadvantages. Two good sources for learning about Chapter 11 include the U.S. Trustee Program and Cornell University Law School.

Anyone who is thinking about filing bankruptcy needs to evaluate the pros and cons. As mentioned earlier there is a high probability of failure that carries harsh consequences. Read up on BAPCPA regulations and learn about the process, than contact a lawyer for help.

Choosing to file Chapter 11 bankruptcy is never a simple decision. However, the more knowledge attained the better chance of landing in the top 10 percent, rather than the 90 percent that don’t succeed.

About the Author: Simon Volkov is a real estate investor and author who has written extensively about bankruptcy. He shares an informative article library covering topics of

Chapter 11 bankruptcy

, personal bankruptcy, and ways to prevent bankruptcy at

SimonVolkov.com

.

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