What Is A Chapter 11 Bankruptcy?

What Is A Chapter 11 Bankruptcy?

The purpose of filing any bankruptcy case is for the bankruptcy debtor to gain a fresh start. This may be done through a  reorganization or liquidation. Similar to a Chapter 13 case, a Chapter 11 bankruptcy case is a reorganization. While bankruptcies under Chapter 11 and Chapter 13 are both reorganizations, they differ significantly based on their requirements.

One of the most significant distinctions between Chapter 11 and Chapter 13 is the latter is only available to natural persons. Any artificial person, such as a corporation, limited liability company, or other business entity must reorganize by filing a Chapter 11 bankruptcy case. Individuals whose amount of debt exceed the Chapter 13 debt limits, must also file a Chapter 11 case to reorganize. For many debtors, Chapter 11 may be an available option even for those individuals who qualify for Chapter 13.

Once a natural or artificial person files a Chapter 11 bankruptcy case, as debtor this entity automatically assumes an additional identity as the “debtor in possession,” which refers to debtors that retain possession and control of its assets while reorganizing, without the need for the appointment of a case trustee. Generally, the debtor, as “debtor in possession,” operates the business and performs many of the functions that a trustee performs in cases under Chapters 7  and 13. The appointment or election of a trustee occurs in only a few Chapter 11 cases.

Chapter 11 debtors must file a written disclosure statement and a plan of reorganization with the court. The disclosure statement must contain information “disclosing” the assets, liabilities, and business affairs of the debtor sufficient to enable creditors to make informed judgments as to the viability of the debtor’s plan of reorganization.

A Chapter 11 debtor remains a debtor in possession until the debtor’s plan of reorganization is confirmed, the debtor’s case is dismissed, the debtor’s case is converted to chapter 7, or a chapter 11 trustee is appointed.

The Chapter 11 plan outlines how the debtor will continue to operate and pay its financial obligations. Most Chapter 11 plans include some downsizing of the debtor-business to reduce expenses. Once the Chapter 11 plan is filed, creditors vote whether to accept it. The alternative is typically the debtor converting its case to one under Chapter 7 and liquidating, which typically results in creditors receiving little or nothing.

In the case of individuals, chapter 11 bears some similarities to chapter 13. For example, the property of the estate for an individual debtor includes the debtor’s earnings and property acquired by the debtor after filing until the case is closed, dismissed or converted; funding of the plan may be from the debtor’s future earnings; and the plan cannot be confirmed over a creditor’s objection without committing all of the debtor’s disposable income over five years unless the plan pays the claim in full, with interest, over a shorter period of time.

The Morrison Law Group strives for complete client satisfaction with the services that we provide throughout a client’s bankruptcy case, as well as the ongoing services that we provide post-bankruptcy. Not all Utah Bankruptcy attorneys can make this statement, but the Morrison Law Group is not like other Utah bankruptcy law firms. We can help if you are facing possible foreclosure or just a few months behind on your mortgage payments. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.


Theron Morrison

Theron Morrison

Utah’s top bankruptcy and consumer protection attorney.