Remember, Chapter 11 Bankruptcy is reorganization, not liquidation. In some cases, filing for Chapter 11 bankruptcy allows a business to continue operating throughout bankruptcy proceedings. What that means is that under trying circumstances, you now have time to reorganize under the bankruptcy court's supervision. It has no limits on the amount of debt, as Chapter 13 does.

How it works

Chapter 11 bankruptcy is generally used by businesses as a way to restructure their debt without losing their company. To accomplish this, the debtor files a petition which includes a list of assets and liabilities, and a detailed statement of financial affairs. And some of the company's assets get sold off to remunerate past due creditors. The debtor must come up with a plan and get it approved by the creditors.

Warning: If the enterprise walks into the courthouse with no preparation, then the results could be the judge transfers the business to the largest people you owe.

Limitations & Drawbacks

Chapter 11 bankruptcy is by far the most expensive corporate option in terms of legal costs and attorneys fees. Just to file a Chapter 11 Bankruptcy you must pay a filing fee of $830.0--plus a quarterly administrative fee to the Court. It is not commonly used by individual consumers because it is far more complex and expensive to pursue.

Chapter 11 Bankruptcy is almost certainly the most flexible of all the chapters, and the same time the hardest to generalize. Chapter 11 bankruptcy is a time consuming and expensive chapter, therefore it is only appropriate for individuals whose circumstances make Chapter 7 or Chapter 13 inapplicable or inappropriate. Less than one percent of all bankruptcy filings are Chapter 11s.

Comparison with Chapters 13 & 7

Chapter 11 bankruptcy is a good option when the business has sufficient prospects to continue operations. Businesses are typically allowed to continue to operate while in Chapter 11 bankruptcy, though they must do so under the supervision of the bankruptcy court.

Chapter 11 Bankruptcy is unique, because the debtor will generally function as his or her own trustee. This concept is called a "debtor in possession". Businesses that file Chapter 11 bankruptcy are typically allowed to operate under the supervision of the bankruptcy court. In Chapter 7 bankruptcy a business sells off all its assets and eventually ceases operation.

Other Options