Chapter 11 bankruptcy

Definition

Chapter 11 bankruptcy allows a company to reorganize its debts and business affairs under the supervision of the court. It is often used by businesses to keep operating while they develop a plan to repay creditors over time.

5 Must Know Facts For Your Next Test

1. Chapter 11 bankruptcy is primarily designed for corporations but can be used by individuals.
2. During Chapter 11, the debtor generally remains in control of assets and operates as a 'debtor in possession.'
3. Creditors must approve any reorganization plan proposed under Chapter 11.
4. Filing for Chapter 11 can impact how companies capitalize or expense items based on anticipated reorganization costs and changes in asset values.
5. The goal of Chapter 11 is to restructure debt obligations and business operations to restore profitability.

Review Questions

• What is the primary purpose of Chapter 11 bankruptcy?
• How does Chapter 11 affect a company's ability to manage its assets?
• Why might a company choose Chapter 11 over other forms of bankruptcy?

Related terms

Debtor-in-Possession: A debtor who retains possession and control of assets while undergoing reorganization under Chapter 11.

Reorganization Plan: A detailed proposal submitted by the debtor outlining how it intends to deal with its obligations and return to profitability.

Creditor's Committee: A group representing the interests of unsecured creditors during a Chapter 11 proceeding.