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Chicago Bankruptcy Question: What is a Chapter 11 bankruptcy?

Chicago Bankruptcy Question of the Day: What is a Chapter 11 bankruptcy?  Chapter 11 bankruptcy is properly titled a "Reorganization" and is usually used by businesses to reorganize their debts in order to keep the business operating.  Some recent Chapter 11 cases that you may be familiar with are General Motors, Kodak and American Airlines, but there are far more Chapter 11 bankruptcy filings by smaller businesses that do not make the headlines.

Individuals can also file for Chapter 11 bankruptcy.  Generally speaking, only individuals who do not qualify for a Chapter 13 bankruptcy because they have too much debt would consider filing for Chapter 11 protection, but that is not always the case.  Chapter 11 bankruptcies are significantly more complex than other chapters of bankruptcy, however, and are therefore more expensive, so most filers would prefer a Chapter 13 if they are able.

In a Chapter 11, the filing entity prepares a series of schedules and a plan of reorganization which are filed with the bankruptcy courts.  Upon filing, the entity is protected from any collection action of their creditors.  The plan of reorganization breaks down the creditors into different classes.  Each class of creditors is treated differently within the plan, with some being paid in full and some receiving only pennies on the dollar.  The plan must be approved by at least one class of creditor to be confirmed by the court.  The plan can also call for the structured liquidation of the business, which is often more economically efficient than filing for a Chapter 7 liquidation and generates a higher return for the creditors.

The U.S. Trustee plays a much more active role in Chapter 11 cases than they do in other bankruptcy filings, as they are the primary administrator of these cases.  The U.S. Trustee also has the right to appoint a creditor's committee, usually made up of the seven largest unsecured creditors of the filing entity, to assist with the supervision of the Chapter 11 plan and investigation into the affairs of the filing entity.

Once a Chapter 11 plan is confirmed, unless it is a case filed by an individual who is not liquidating their business, the court immediately issues a discharge.  This is very different than a Chapter 13 plan, where a discharge is not issued until the end of the repayment plan.    The discharge in a Chapter 11 case does not end the case, however, as the filing entity is then bound to complete the reorganization plan.

Chapter 11 cases are very complex, the deadlines imposed by the courts are very strict and even a small mistake can lead to disaster for the filing entity.  There are plenty of well-qualified Chapter 11 lawyers in the Chicago area with several of the big law firms.  These lawyers come with the big law firm fees and level of attention.  If you have a small business that needs to reorganize and cannot afford to hire a big firm to represent you, then call the attorneys at Ledford & Wu.  We have the skill and experience to represent you throughout the Chapter 11 process with a fee structure that is much more reasonable for a small business struggling to survive.

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