What Is Chapter 11 Bankruptcy and Who Can Get It?

ByNikolina Cveticanin
June 24,2022

When running a business or reviewing our personal finances, more often than not, we find ourselves lacking funds for something. If it’s something luxurious, most of us simply won’t get it unless it’s absolutely necessary. After all, bad credit loans are something all of us try to avoid. Still, when we need something for our company to grow, we’ll try to get a loan.

The more money we need, the bigger the loan’s drawbacks. So what happens if we can’t pay those loans back? Bills and debts start piling up, and you don’t know which way is up anymore. If you’ve drained every option and even bad credit loans are no longer an option, it might be time to declare bankruptcy.

Is that the right choice for you, and how will you get back on your feet afterward? Well, the US government came up with a few solutions, one of them being Chapter 11. But what is Chapter 11 bankruptcy?

Chapter 11 ​​Bankruptcy Explained

By definition, Chapter 11 bankruptcy involves reorganizing a debtor’s assets, debts, and business affairs, which is why it’s also known as "reorganization" bankruptcy. Although it’s available to individuals and businesses alike, it’s mostly used by companies.

Commonly, the debtor is allowed to keep their possessions, is viewed as a trustee, may continue to run their business, and (with court approval) borrow money again. When a reorganization plan is developed and proposed, creditors vote on it; if it passes and fulfills specific legal prerequisites, it is approved by the court.

The purpose of the Chapter 11 bill was to help businesses regroup and set up a strategy for the future. This plan may contain modifying payment due dates and interests and can even remove a debt entirely.

How Does Chapter 11 Work?

All bankruptcy chapters, including Chapter 11, halt the collection process. Once filed, the "automatic stay" forbids most creditors from hunting you, giving you enough room to breathe and figure out your next move. This temporarily stops:

  • Payment demands
  • Removal or any kind of foreclosure
  • Collections trials
  • Till taps, property confiscation, bank levies

Unlike other chapters, Chapter 11 allows the debtor to act as the trustee, meaning that they can continue everyday business functions as a "debtor in possession" while Chapter 11 restructuring takes place.

However, the business can not make all decisions without court permission. Restricted decisions include sales of any assets other than inventory, creating or closing a rental agreement, taking out new loans, and controlling business operations.

The court also controls payment decisions and contracts related to attorneys, vendors, and unions. Ultimately, the debtor cannot take out a loan that will begin after the bankruptcy is complete.

Is Chapter 11 the Best Bankruptcy Option for You?

There are nine chapters in Title 11 of the US Code, each focusing on different bankruptcy strategies. Chapters 1, 3, and 5 explain the legalities of bankruptcy for all parties involved, including the debtor, creditor, and court. 

The other chapters explain who can file for bankruptcy and how to do so according to who they are or whom they represent:

  • Chapter 12 is for family farmers or family fishers with regular income. 
  • Chapter 15 is used in international cases.
  • Chapter 13 is for individuals with stable income and has certain debt restrictions.
  • Chapter 7 is the liquidation bankruptcy chapter for people who cannot create a reorganization plan and provides them with information on liquidating their remaining assets.

How to File for Chapter 11 Bankruptcy

Now that Chapter 11 bankruptcy has been explained, let’s go over the procedural part. It begins by filing a petition at the debtor’s residential area or incorporation location’s federal bankruptcy court. It may be a voluntary petition, filed by the debtor, or an involuntary one, filed by creditors that meet specific requirements.

Then, the creditors vote if the plan within the petition is acceptable. Since the next option is usually filing for a Chapter 7 bankruptcy, meaning liquidation, creditors are typically cooperative.

However, if a creditor objects to the plan, the court will get the input from creditors and other interested parties, before deciding on the best course of action. The determining factors include:

  • Success probability
  • Good faith
  • The creditors’ best interest
  • If it is fair and equitable

So how long does Chapter 11 take? Well, there are technically no limitations. Some cases take only a few months, but it often takes six months to two years for a case to close.

FAQ
Does Chapter 11 wipe out all debt?

It can, if the court decides it is the best course of action, due to the debtor not having enough resources to repay said debt.

What qualifies you for Chapter 11?

Your debts can’t surpass $1,184,200 in secured debt (mortgage, car payments, etc.) and $394,725 in unsecured debt (credit cards) if you want to qualify for this solution.

What is the difference between Chapter 11 and Chapter 7?

The main difference between Chapters 11 and 7 is that the entity filing for bankruptcy with Chapter 11 remains in control of its operations and isn’t required to liquidate assets; both things are necessary with Chapter 7.

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By Julija A. · May 24,2022
Just as we often resort to financial institutions such as banks to ask for a loan when we can't afford expensive purchases, businesses can also do it when they lack the capital to fund their operations. However, instead of going to a bank to ask for a loan, most business owners opt for signing a bond with investors, not only because it allows them to borrow larger sums of money but also because bonds have longer maturities.  At this point, you may be saying, “Hold on, what are bonds and how do they work?” Well, this article is all about bonds, so keep reading to find out. What Are Bonds? Simply put, a bond is a source of funding that companies obtain through the public through investment banking. 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When companies or other entities like governments need to raise money to fund their operations or maintain ongoing ones, finance new projects, or simply pay existing debts that are about to mature, they may issue bonds directly to investors. After the decision to issue a bond has been made, business owners present their case to investors, who decide if investing is a good idea after analyzing the company’s financial situation. If investors believe you're in a good position to pay the money back in the stipulated time lapse, they will purchase the bond and become bondholders. Keep in mind that, after being issued, investment bonds can be sold by the initial bondholder to other investors. That means a bond investor is under no obligation to hold a bond all the way through its maturity date and can sell it on the secondary market whenever they want if they decide to do so.  Bondholders may decide to 'resell' bonds if they believe they could increase in value and get gains on the sale. 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By Vladana Donevski · December 22,2022
It’s never a good idea to mix your personal money with your limited liability company funds and thus be personally liable for your LLC’s legal obligations and potential debts.  That’s why we’ve compiled detailed instructions and a comprehensive list of requirements for opening a bank account for an LLC. Stay with us and learn more about the procedure and the required documents.  Why Should Your LLC Have a Designated Bank Account? There are a variety of legal and practical reasons for you to open a designated business checking account for your LLC. Here are some of them: Having an LLC means that you have formed a separate business entity. If your LLC doesn’t have a separate bank account, your personal and business finances will be commingled, and you’ll be at risk of jeopardizing the LLC. Should your LLC end up in debt or get sued, your personal funds won’t be sought after, leaving only your business funds open for scrutiny. 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Choose a Bank The first step when opening a bank account is choosing the right bank for your small business needs. When shopping around for the bank that you’ll place your trust in, pay attention to the following: Online or Brick-and-Mortar Bank Depending on whether you prefer to go to the physical bank branch or enjoy banking from your home or office, you can open an LLC bank account online or choose a bank with physical branches. If you decide on the latter, a favorable system is to pick the same bank you have your personal account with. Visiting the same branch for both business and personal transactions can save you a lot of time. Check the Fees There are other basic LLC bank account rules, such as checking which banks offer the best terms, conditions, and fee structures. 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However, here’s a list of some of the most common documents that banks will ask you to submit: A copy of LLC’s articles of organization is a legal document that establishes your LLC at the state level. Depending on where your company is registered, this document can also be referred to as a certificate of formation or certificate of organization.  Your Employer Identification Number is necessary as it lets the IRS identify your business entity for tax purposes. If the LLC is formed as a single-member LLC, you can provide the Social Security number of the sole proprietor. Also, an EIN verification letter would be accepted, too.  An LLC operating agreement is necessary when opening a bank account for an LLC as it lets the bank know who is authorized to sign, deposit, and withdraw funds on behalf of the company. Government-issued photo ID, such as a valid driver’s license or a passport is a must. Additional documents will be required if the LLC is doing business under a different name. 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By Vladana Donevski · December 22,2022

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