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Chapter 11 Bankruptcy Law: Reorganize Business Debts

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Under Chapter 11 bankruptcy law, business entities, such as corporations, partnerships and sole proprietorships, are allowed to reorganize their debts. The debtor, or in other words the entity filing for bankruptcy, files a bankruptcy claim form which is a petition to the court requesting relief from their debts, under US Federal bankruptcy statues.

The Chapter 11 law requires that the business filing for bankruptcy, must provide full financial disclosure to the bankruptcy court. This means that the organization, or their bankruptcy attorney, must provide a complete and detailed list of all of the company's assets, all of the liabilities and a complete statement of the financial status and affairs of the entity.

Unlike other types of bankruptcies, according to Chapter 11 law, the debtor is able to act as his own trustee. In Chapter 7 and Chapter 13 bankruptcy cases, the court appoints a trustee. When a debtor acts as a trustee in a Chapter 11 bankruptcy, it is known as a "debtor in possession" because the trustee maintains possession of the property. However, the court is able to appoint a different trustee to the case if there is just cause shown, such as in the case of mismanagement of the business entity.

About a month after the point that they file bankrupt, the debtor and their lawyer are brought into a meeting which includes the creditors that are owed money by the company. In addition to this initial meeting, Chapter 11 bankruptcy law also requires that the company supply the creditors with monthly reports which details the operations of the company. These reports are to include the income and expenses during the month, the balance sheet, and the profit and loss statement for the company.

Chapter 11 law allows for the debtor to file a financial plan during the first four months after a new bankrupt filing is submitted to the Federal bankruptcy court. After that time, the creditors of the company are allowed to submit filings of their plans.

The Chapter 11 law also requires that the plan submitted by the debtor includes a disclosure statement that goes into detail of company's financial situation and future plans. Some of the areas that are disclosed are the following: a summary of the company history and the primary cause that necessitated filing for bankruptcy; the company's assets and liabilities; the income and the expenses of the operation; a description of the company's treatment of their creditors; an analysis of asset liquidation; projections of future earnings; expected tax consequences; a discussion of various options open to the entity; and finally, the plan for repayment of the debts.

Under Chapter 11 bankruptcy law and the reorganization plan that is agreed upon, it is required that the business continues normal operation in order to provide a means by which to make payments on the repayment plan. The plan can also be paid if the company can secure new financing or by the selling off of assets. The creditors are paid in accordance to their standing of being a priority or non-priority creditor and depending on if the loan was secured or unsecured.