United States Bankruptcy Code Chapter 11
United States bankruptcy code chapter 11generally provides for reorganization for partnership or corporation. As provided for by this chapter, a debtor proposes a strategy or plan for the reorganization to keep business alive as well as pay creditors with time. Individuals and businesses undergoing financial crisis seek relief in chapter 11.
In case a business can no longer service debtors or even pay creditors, the business itself or creditors may file for bankruptcy with the federal court. This is provided for in the Chapter 11 and Chapter 7. In most cases, Chapter 11 allows debtors to maintain control of the operations of the business as the debtors in the possession. However, the business is subjected to court’s jurisdiction and oversight.
The United States bankruptcy code chapter 11retains most features that are present in most or all bankruptcy proceedings. It also provides additional tools that debtors can use as well. The most important aspect of this chapter is that it empowers trustees so that they can operate business of the debtors. According to this chapter, unless a trustee is selected or appointed for the cause, debtor acts as the business trustee as a debtor in the possession.
The debtor in the possession is afforded several mechanisms that they can use in restructuring the business. For instance, the debtor may acquire loans or financing on terms that are favorable to them by offering first priority of the earnings of the business to new lenders.
The court can also allow debtor in the possession to cancer or reject contracts. This chapter also protects debtors from litigation against their business via automatic stay imposition. As long as the automatic stay remains in place, the creditors are not allowed to make collection attempts. They are also deterred from engaging in activities that are against debtor in the possession. Majority of the litigations that are against the business debtor are stayed or simply kept on hold till the bankruptcy case is resolved in court or original revenue of the business is resumed.
A business is considered insolvent when it has debts that exceed assets and at the same time the business cannot debts. Bankruptcy restructuring can result in a situation where the owners of the company will lose everything. Ownership of the company after reorganization is left with the creditors. Owners of the company lose interests and rights to the creditors of the company. The court determines whether the reorganization plan being proposed abides by bankruptcy law as provided for by the United States bankruptcy code chapter 11.
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