Chapter 11 Bankruptcy is a section of the United States Bankruptcy Code that permits businesses and individuals to close either down or restructure their debt obligations. Businesses and individuals who file for Chapter 11 bankruptcy code, are allowed to keep possession and control of their assets while under constant supervision of a bankruptcy court.
It is worth noting that once an individual or a business entity files for Chapter 11, all judgments, property repossessions and imminent closures are out rightly suspended. This is done with the sole aim of giving them a chance to negotiate with their creditors and agree on the payment modalities. It also gives the affected individuals and businesses a new lease of life since it bars creditors from directly seeking for debts owed before the petition was filled.
When filing for Chapter 11 of the bankruptcy code, the affected entity must draft a written disclosure statement detailing how they plan to reorganize and deposit it with the bankruptcy court. The disclosure statement must contain information about the business’s assets and liabilities, its reorganization plans and how they plan to handle all claims brought about against them.
Once the proceedings begin, all the creditors are expected to participate and constitute a seven- man working committee that will be required to unravel the company’s past conducts and business operations thereby coming up with a workable recovery plan. This committee is largely made up of entities that the business owed a lot of unsecured claims. In extreme cases whereby recovery is unforeseen, the committee can convert the bankruptcy case to a liquidation under Chapter 7.
After filing for Chapter 11 Bankruptcy, the affected business has 120 days to file a reorganization plan with the bankruptcy court, it is also expected that it will persuade all its creditors and aggrieved parties to accept the proposed plan, if these deadlines are not met, the creditors and aggrieved parties are at will to propose their reorganization plan.
Both parties must reach a consensus on the reorganization plan before the court independently reaffirms its viability. Once authenticated and implemented, the plan becomes a binding legal document and will exempt the company from its previous debts while charting a clear way on how to pay its creditors.
Apart from general liabilities, Chapter 11 Bankruptcy Code can also be used to file for tax reorganization that a business or a company had incurred in the past. It allows the affected business to operate normally while meeting their tax obligations at the same time. Constitutionally, tax obligations are always sorted out within a time frame of five years, but Chapter 11 allows a business or an individual to renegotiate payment terms on mutually agreed grounds. To finalize the Chapter 11 proceedings, a final decree closing the case must be entered after the reorganization plan had been fully executed and the estate fully administered. Local bankruptcy courts have policies that determine when the final decree is entered and the proceedings closed. This final decree closing a Chapter 11 proceeding cannot be delayed even if the payments required by the plan have not been effected.