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The basics of Chapter 11 bankruptcy

If your business is struggling, you may find that your debts become too much for you to handle. In this case, it might be the best idea to file for bankruptcy protection. Many businesses decide to file for Chapter 11 bankruptcy. You may hear people call it reorganization because, according to the U.S. Courts, under Chapter 11, you create a  plan to reorganize your debts and assets while continuing the operation of your business.

Unlike other types of bankruptcy, in Chapter 11, there is not usually a trustee that handles your assets. The court will only appoint one in certain situations, usually, if there is a concern over fraud. You will act in the trustee’s place as a debtor in possession. There will be a U.S. trustee that oversees your bankruptcy, though.

Court permission

You will still operate under the advisement of the court. You may have to get the court’s approval for certain actions, such as selling assets. You will need to also have the court involved if you create new contracts with vendors.

The reorganization plan

You have the right to create the plan first. Your plan may do many things that would help your business to become financially stable and negotiate debt payments. You may also liquidate your assets to repay creditors. The court must approve your plan. Sometimes creditors and the court will assist with the creation of your plan.

Creditor committee

Chapter 11 also involves creditor committees. These are groups of creditors who will analyze your business and assist you with creating your reorganization plan. They are usually your largest unsecured creditors. They are there to ensure you operate your business properly during the bankruptcy.