Chapter 11 Bankruptcy is for business debtors. Chapter 11 Bankruptcy allows a business to reorganize its financial affairs to remain in business. It is appropriate for businesses who are experiencing short term financial difficulty but expect things to get better in the future. Examples include the loss of a major client or a short-term downturn in business.
In a Chapter 11 case, an attorney prepares a petition similar to the petition prepared in other bankruptcy cases, except the petition involves business property. The plan of reorganization may or may not be included with the original petition. After the petition is filed, the business will continue to operate under the supervision of the U.S. Trustee’s office. The business must file regular financial reports with the U.S. Trustee’s office, and obtain court approval of financial transactions during the term of the plan.
A plan of reorganization usually classifies creditors in groups of secured creditors, unsecured creditors, and priority creditors such as taxes and utilities. Debtors will usually work with creditors to get approval of the plan during the term of the bankruptcy. It can be an effective strategy for the business to work with creditors to come up with a plan that is agreeable to all parties prior to filing bankruptcy.