Chapter 11 bankruptcy restructures business debts and assets. Corporations primarily use this type of bankruptcy, but individuals can also file Chapter 11. Texas businesses filing debt reorganization remain in control of business operations and aren’t required to liquidate assets to repay debts.
Continued revenue generation keeps the company afloat, and the bankruptcy court issues a stay to stop collection efforts. Creditors work with the corporation through the process in hopes of getting additional payment outside of the debt reorganization plan.
Corporations seeking Chapter 11 bankruptcy relief incur significant legal fees. Careful planning and analysis are wise actions to take before filing. Chapter 11 protects assets but is also invasive and public. Some corporations are averse to debt reorganization because of its effects on the company’s reputation and shareholders. Many large corporations have filed for Chapter 11 bankruptcy with a successful restructuring.
Two types of trustees
Chapter 11 bankruptcy trustees facilitate reorganization plans that support the debtor and their creditors. Trustees are court-ordered. The Small Business Reorganization Act of 2019 (SBRA) appointed “subchapter V trustees” and non-SBRA trustees or “Chapter 11 trustees.” Each trustee type is court appointed and determined on a case-by-case basis.
The trustee has a fiduciary responsibility to act under the Chapter 11 bankruptcy laws and all orders by the court. While larger corporations traditionally use Chapter 11 trustees, smaller businesses now have greater access to Chapter 11 debt reorganization using “Subchapter V trustees.”
Chapter 11 Bankruptcy Debt reorganization
The aim of businesses filing for Chapter 11 bankruptcy is to strengthen their financial position. Companies agree to abide by the court-approved repayment plan and abstain from acquiring new debt during a Chapter 11 reorganization. The Chapter 11 repayment schedule generally ranges from six months to two years but can last longer. The judge decides if reorganization is reasonable for the business and creditors.