Traditionally, a business may proceed under a Chapter 7 bankruptcy, described above, or a Chapter 11 case. Chapter 11 is basically the business equivalent of a Chapter 13 for individuals.
Filing Chapter 11 bankruptcy basically means you’re submitting a reorganization plan to restructure your debts to help you repay your creditors over time. It’s most often used by large businesses, but it can also help certain people and small-business owners. Chapter 11 is a more complicated bankruptcy filing, but can be useful if you don’t qualify for Chapter 13.
If you’re filing Chapter 11 bankruptcy as a business, it helps you create a plan to keep your business active while paying all your creditors over a set period. When a business files a petition for Chapter 11 with the court, it may be voluntary or involuntary. A voluntary petition is filed by the business, but an involuntary petition is filed by the business’ creditors once certain requirements have been met.
You have approximately four months to come up with a reorganization plan after filing your petition, but in some cases this time frame may be extended up to 18 months. When creating your reorganization plan, you place each of your creditors into its own class. Unsecured debts are placed in a separate class and never lumped with any other debts. Priority for repayment is placed on certain debts, which means these are paid before others. The debt obligations may be restructured, in some cases reduced, or payoff time extended, and a payment plan set up to pay off and settle the debts. An administrator, known as a U.S. trustee, appointed by the courts supervises and works closely with the business until debts are settled. The administrator regularly reviews the business operations and finances and works with the petitioner and the courts until the case is closed. While there is some control, there is truly more power in the creditors who form a committee and the trustee than the debtor.