Chapter 11 Bankruptcy: Tips for Restructuring Business Debt

Chapter 11 bankruptcy provides protection to businesses and individuals that carry high levels of debt. Also known as "reorganization bankruptcy", Chapter 11 provides debtors with the option to restructure debt and become financially revitalized.

Using chapter 11 bankruptcy protection, debtors are allowed to hold onto personal and business assets such as real estate, commercial buildings, automobiles and equipment. During the bankruptcy process debtors must obtain credit counseling, submit a debt repayment plan, and obtain bankruptcy confirmation through the U.S. Trustee creditor committee.

Chapter 11 petitions are more costly and time consuming than any other bankruptcy chapter. Strict guidelines are imposed and stringent repayment requirements often cause many debtors to fail out of bankruptcy; losing all protection from the court. Bankruptcy experts claim only about 10-percent of chapter 11 reorganization bankruptcies end in success.

The low rate of success primarily stems from the fact that Chapter 11 bankruptcy is utilized by the mega-wealthy and large corporations. Recent chapter 11 filings include Reader's Digest, Washington Mutual bank and Lehman Brothers.

Chapter 11 bankruptcy petitions must be confirmed through the U.S. Trustee creditors committee. Committee members vote to deny or approve submitted repayment plans. Debtors must file a disclosure statement outlining financial information regarding assets, liabilities, and finances.

The disclosure statement is essential for obtaining bankruptcy confirmation. Information provided in the statement allows the Trustee's committee to make informed decisions regarding debtors' financial ability to reorganize and repay debts.

Once chapter 11 bankruptcy is confirmed, the court oversees finances until outstanding debts are fully paid. Corporations are required to repay creditor debts before making financial distributions to shareholders.

Although Chapter 11 is exceptionally complex, it offers more flexibility than other bankruptcy chapters. Multi-dimensional options add layers of flexibility not found in personal bankruptcy options. The flexible options of Chapter 11 provide debtors with multiple options to restructure debt.

A qualified bankruptcy lawyer is necessary when filing for Chapter 11 bankruptcy. Attempting to file Chapter 11 without an attorney would be committing financial suicide. Congress enacted new bankruptcy laws in 2005 that impose strict rules and regulations. One improper form or missed deadline could result in dismissal of the bankruptcy petition.

Two credible sources for obtaining information and resources regarding Chapter 11 bankruptcy include Cornell University Law School and the U.S. Trustee Program; a division of the United States Department of Justice.

Individuals and business owners should understand the risks and rewards of filing Chapter 11 bankruptcy. Consult with bankruptcy attorneys and conduct research at the above mentioned websites.

Deciding to file bankruptcy is never an easy decision. However, the more you know, the better prepared you will be to end up in the 10-percent of successful transactions, instead of the 90-percent that fail.