Chapter 11 bankruptcy is typically used to reorganize a business as a going concern under court protection.Upon filing, the debtor in Chapter 11 automatically becomes a “debtor in possession.” As a debtor in possession, the business is authorized to operate without the appointment of a trustee until a plan of reorganization is confirmed, the case is dismissed or converted to a Chapter 7 bankruptcy, or a Chapter 11 trustee is appointed (which is rare).The preparation, confirmation, and implementation of a plan of reorganization is at the heart of a Chapter 11 bankruptcy case.A Chapter 11 plan often allows the debtor in possession to either restructure the operating business, or sell business assets under better circumstances than a chapter 7 liquidation.
Chapter 7 is also used by businesses to terminate operations, and resolve tax liabilities that might otherwise become personal liabilities of the principals.
A Chapter 13 bankruptcy, also referred to as a “Wage Earner’s Plan,” allows time to bring past due payments on home loans and car loans, and avoid foreclosure or repossession while payments are made under a court approved plan.
Under Chapter 11, the debtor and creditors can structure an orderly sale of assets, and provide for a quicker distribution of the sale proceeds than would occur under Chapter 7.
Chapter 11 can be filed by almost any corporation, partnership or individual.
Chapter 13 can also be filed when individuals have too much disposable income under the Means Test under Chapter 7.A Chapter 11 bankruptcy filing will immediately stop foreclosures, repossessions, lawsuits and collections.