USA LAW - Bankruptcy Under Chapter 11

 

Bankruptcy Under Chapter 11- is referred to as recognizable bankruptcy. In this bankruptcy, the debtor will remain in possession of his business and has the powers and duties of a trustee and with court approval borrow more or new money.

This type of bankruptcy allows the business to operate day to day as is referred to as reorganization bankruptcy. It gives businesses time to create a plan to pay the creditors. This type of bankruptcy can take a long time to solve and with time there will be costs associated with it and in many cases does become a costly affair. General Motors, Lehman Brothers even Kmart have all gone through this type of bankruptcy where they have asked the court for time and reorganization to pay their creditors. Corporations and Limited Liability entities opt for this type of bankruptcy.

This type of bankruptcy case does take a lot of time and the cost of lawyers for their legal advice can add on over time unless one has an in-house lawyer.  Businesses cannot sell assets, borrow, or make other important financial decisions without the court's approval. It does not protect or shied proprietors or creditors from seeking their payments.

The average length of Chapter 11 Bankruptcy is 17 months and many larger and complex cases can take up to 5 years or more. It may take a long time for the creditors to get their payments as the entity will have to go through reorganization and that may take time. The creditors will be based on priority by the Court System for the distribution of payments, so the process is lengthy and the creditors will have to learn to be patient and wait for their money to return.

The creditors will lawfully get their payments from the debtor but will have to wait and will be based on priority. In the Bankruptcy Court, the debtor and the creditor will play their parts in the scheduling and rearranging of the payments. Corporations and Limited Liability Companies opt out of this kind of bankruptcy as they need time to pay their creditors. This type of bankruptcy is to protect the failing business's survival as the business will continue to operate and will give it time to reorganize so it can pay its creditors and this may take some time.