Facts About Chapter 11 Bankruptcy

Normally a Chapter 11 case begins when an individual or individuals file a petition in bankruptcy court. Chapter 11 cases are generally voluntary, which means it is the debtor who takes the initiative and pursues bankruptcy relief. Sometimes, creditors will come together to file an involuntary Chapter 11 petition against the defaulting debtor. Most Chapter 11 cases are filed by corporations, partnerships, and limited liability companies.

There is no exact time frame of how long a Chapter 11 case proceeding takes. Normally a Chapter 11 case wraps up in a few months. However, it can take at least six months to two years for a case to come to a close. In a Chapter 11 case there is no trustee appointed unless the court finds cause to do so. Such causes include fraud, dishonesty, incompetence, and gross mismanagement of the debtor’s affairs. A debtor may continue to operate its business after filling. However, the bankruptcy court must approve

-any sale of assets, which include any property or real property

-breach of a lease of real or personal property

-any arrangements for mortgage or other secured financing

-closing of the business or expanding of business

-any entering into new licensing, and or other contracts and agreements

These and other actions that require court approval can be supported or opposed by creditors, shareholders, and other parties. At the end it is the bankruptcy court’s decision to consider information from creditors and other parties before deciding how to proceed with the case.

Normally unsecured creditors participate in the Chapter 11 case through a committee that is chosen to represent them.  The unsecured creditors’ committee can hold attorneys and other professionals to assist at the debtor’s expense. There are instances in which some cases, shareholders and other committees also take an active role in the court proceedings.