Chapter 11

Chapter 11 is typically used by businesses and some individuals with very large debts. Individuals whose debts exceed the limitations in a Chapter 13 bankruptcy ($360,475 in unsecured debts; $1,081,400 in secured debts) can file under Chapter 11 instead. Chapter 11 is available to virtually any individual or business entity, with a few exceptions. Governmental units, insurance companies, stockbrokers, commodity brokers, most banks and credit unions, and SBA licensed small business investment companies are ineligible for Chapter 11 relief.

In most business Chapter 11 cases, the debtor remains in control of business operations. The debtor becomes what is called the “debtor in possession.” The debtor acts as a fiduciary of the bankruptcy trustee. This means that the debtor's actions are supervised by the court and it must act as the trustee would – for the benefit of the creditors. A separate trustee can be appointed for cause, meaning a trustee could take over the business operations if necessary.

Chapter 11 bankruptcy gives the debtor in possession a number of options to restructure its business. For example, a debtor in possession can attempt to acquire more favorable loans or financing. The court may also allow the debtor in possession to cancel or reject certain contracts that are unfavorable to the business. Just like in Chapter 7 and 13 bankruptcies, debtors are also protected from creditors’ debt collection attempts, foreclosure, and repossession through the imposition of an automatic stay. While the stay is in effect, most debt collection actions are put on hold. This gives the debtor time to reorganize without fear of action from creditors.

Much like in a Chapter 13 bankruptcy, a plan is filed with the court under Chapter 11. Chapter 11 debtors can either liquidate its assets or they can keep assets and repay creditors through a plan of reorganization. Chapter 11 debtors have an exclusive right to propose a plan of reorganization for 120 days. After that time, creditors may also propose plans. The plan must meet certain requirements in order to be approved by the bankruptcy court. One requirement is that creditors must vote to approve the plan. If a plan is not approved, the court may convert the case to a Chapter 7 or dismiss the case. Chapter 11 bankruptcies can last from a few months to several years, depending on how large and complex the case is.