Chapter 11 bankruptcy protection

Chapter 11 is a chapter of the United States Bankruptcy Code which governs the process of reorganization under the bankruptcy laws of the United States. (The Bankruptcy Code itself is Title 11 of the United States Code; therefore reorganization under bankruptcy is covered by Chapter 11 of Title 11 of the United States Code. ) In contrast, Chapter 7 governs the process of a liquidation bankruptcy.

Definition

When a troubled business decides that it is unable to service its debt or pay its creditors, it can file (or be forced by its creditors to file) with a federal bankruptcy court for bankruptcy protection under either Chapter 7 or Chapter 11. Provision of US federal bankruptcy legislation allowing a company in debt Chapter 11 bankruptcy. A Chapter 7 filing means that the business intends to sell all its assets, distribute the proceeds to its creditors, and then cease operations. A Chapter 11 filing, on the other hand, is an attempt to stay in business while a bankruptcy court supervises the "reorganization" of the company's contractual and debt obligations. The court can grant complete or partial relief from most of the company's debts and its contracts, so that the company can make a fresh start. Often, if the company's debts exceed its assets, then at the completion of bankruptcy the company's owners (stockholders) all end up with nothing — all their rights and interests are terminated — and the company's creditors end up with ownership of the newly reorganized company, in the hopes that it will eventually succeed financially as compensation for their losses. Bankruptcy Code.