Redwood City Bankruptcy: Let's Talk Chapter 11

The term “Chapter 11” refers to Title 11 of the United States Code, also commonly known as “reorganization” and is mostly used by corporations. A chapter 11 case begins with a voluntary petition filed by the debtor or an involuntary petition filed by creditors who meet certain requirements. While in Chapter 7, businesses cease operations, a trustee sells all of its assets, and then distributes the proceeds to its creditors; in Chapter 11, the debtor remains in control of his business operations as a debtor in possession and is subject to the oversight and jurisdiction of the court.
The debtor’s goal is to reorganize himself to emerge from the bankruptcy state able to move forward, which usually means making profit. Yet, he only has 120 days to negotiate with his creditors and leaseholders to assemble a proposal to move towards the ultimate goal. Usually, debts are reduced, contracts altered, leases changed, or any actions will promote the debotr’s viability. During the 120 day period, an automatic stay is in effect, as it is under the other Chapters and creditors vote on the plan. Although not all creditors agree, but the more power the debtor has, the more say he has in the voting. After the 120 days and there is no concensus on  a plan, the creditors offer their own plans. In the end, either a plan is accepted or the business must liquidate and fold.
Unlike Chapter 7 or Chapter 13, Chapter 11 does not grant discharge and put repayment plans in place (at least no one that the court monitors). Instead, once a Chapter 11 reorganization plan is voted on and passes, the reorganized company (and its associated reorganized debt) “emerges” from bankruptcy. It is a new incarnation of its former self, with the court’s involvement.

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