Corporate Law Blog

Looking at the basics of Chapter 11 for businesses, P.1

Last time, we mentioned that a Virginia-based mining company will be selling off parts of its business—including parts located in Kentucky—as part of its Chapter 11 bankruptcy filing. In this and our next post, we wanted to provide a brief overview of Chapter 11 bankruptcy and why it is important for businesses to work with experienced legal counsel when pursuing a bankruptcy.

Chapter 11 bankruptcy, like Chapter 13, operates on the principle of reorganization, as opposed to the liquidation approach used in Chapter bankruptcy. The idea with Chapter 11 is to allow a debtor to come up with a debt repayment plan and make payments over a handful of years in order to pay back creditors. Chapter 11 bankruptcy may be pursued by people in business or individuals, but it is typically used to reorganize a business, whether it be a sole proprietorship, partnership, or a corporation.  

Chapter 11 bankruptcy affects different types of businesses differently. For sole proprietorships, Chapter 11 bankruptcy affects both business and personal assets. For partnerships, Chapter 11 bankruptcy the personal assets of partners may be used to pay back creditors or individual partners may have to file for bankruptcy. For corporations, a bankruptcy filing does not put personal assets of stockholders at risk beyond the value of their investments in company stock.

In most Chapter 11 cases, the debtor also acts as a fiduciary with respect to the case. This means the debtor is responsible for accounting for property, filing reports with the court, and dealing with creditor claims. Chapter 11 cases also involve creditors’ committees to ensure that the debtor properly managing

In our next post, we’ll continue looking at the topic of business bankruptcy and how an experienced advocate can help a business through the process.