Named after the U.S. bankruptcy code 11, Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs and assets. Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its obligations under its plan of reorganization.
The debtor in possession is a fiduciary for the creditors. If the debtor's management is ineffective or less than honest, a trustee may be appointed.
A creditors committee is usually appointed by the U.S.Trustee from among the 20 largest, unsecured creditors who are not insiders. The committee represents all of the creditors in providing oversight for the debtor's operations and a body with whom the debtor can negotiate an acceptable plan of reorganization.
A Chapter 11 plan is confirmed only upon the affirmative votes of the creditors, who are divided by the plan into classes based on the characteristics of their claims, and whose votes are a function of the amount of their claim against the debtor.
If the debtor can't get the votes to confirm a plan, the debtor can attempt to "cram down" a plan on creditors and get the plan confirmed despite creditor opposition, by meeting certain statutory tests.
The rate of successful Chapter 11 reorganizations is depressingly low, sometimes estimated at 10% or less.
Individuals usually reorganize under Chapter 13, which offers a streamlined plan at modest cost that allows the individual to keep possession of his assets, catch up on secured debt, and discharge unsecured debt at the end of the plan.
The debtor in possession is a fiduciary for the creditors. If the debtor's management is ineffective or less than honest, a trustee may be appointed.
A creditors committee is usually appointed by the U.S.Trustee from among the 20 largest, unsecured creditors who are not insiders. The committee represents all of the creditors in providing oversight for the debtor's operations and a body with whom the debtor can negotiate an acceptable plan of reorganization.
A Chapter 11 plan is confirmed only upon the affirmative votes of the creditors, who are divided by the plan into classes based on the characteristics of their claims, and whose votes are a function of the amount of their claim against the debtor.
If the debtor can't get the votes to confirm a plan, the debtor can attempt to "cram down" a plan on creditors and get the plan confirmed despite creditor opposition, by meeting certain statutory tests.
The rate of successful Chapter 11 reorganizations is depressingly low, sometimes estimated at 10% or less.
Individuals usually reorganize under Chapter 13, which offers a streamlined plan at modest cost that allows the individual to keep possession of his assets, catch up on secured debt, and discharge unsecured debt at the end of the plan.
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