What is Chapter 11 Bankruptcy?

The US Bankruptcy Code has arrangements available for companies in financial difficulty as well as for individuals. Companies and large firms that are facing severe and unmanageable debt may seek to file chapter 11 bankruptcy, which allows them to re-organize so they can either continue their day-to-day operations or go out of business entirely. Under chapter 11, a company is protected from damaging lawsuits and other negative measures, but in exchange the company is usually required to have all its major business decisions approved by the bankruptcy court.

  While Chapter 11 bankrucy is not a type of personal bankruptcy, it is the one you are likely to hear spoken about most often, especially in a bad economic climate. This type of bankruptcy case is still important to individuals, though, when they have personal money invested in the stocks of a company that files for chapter eleven. Companies with stocks may sometimes be allowed to have their stock traded during bankruptcy, while others might not, depending on the judgment of the courts. If a company does ultimately manage to re-organize and merge into a new company structure, stocks in the old company are sometimes made available as stocks in the new company.

Because Chapter 11 generally involves a far more complex array of debts and creditors, this type of bankruptcy is enormously more prolonged than personal bankruptcys and as a consequence the filing and court procedures are extremely costly and require a much bigger team of attorneys on the side of each party involved in the case. In the case of a chapter eleven banktruptcy, the trustee is the bankruptcy division of the Justice Department. The trustee will then appoint committees to represent the interests of both the creditors and stockholders while working with the company to organize a plan to address the outstanding debts in a way that will best serve everyone involved. Since these bankruptcies usually effect the economic health of thousands of private investors, the welfare of all those involved has to be taken into account by the bankruptcy court, and some measure to account for shareholder loss is often a central point in the re-organization plan of chapter 11. Similarly effected are those who are employed by the company in question, and so a company in chapter 11 is usually able to continue paying employee wages and offering employee benefits.