Have you read in the papers that yet another company has filed for chapter 11 and have always wondered what this means? In a nutshell, chapter 11 is one of the chapters related to bankruptcy in the United States of America.
It allows reorganization options to businesses, corporations and individuals under the United States bankruptcy laws.
It is unfortunately mostly used by corporate entities which end up losing all their money.
In fact, a case which is filed under chapter 11 is also popularly referred to by the term 'reorganization' bankruptcy.
The process of filing chapter 11 starts with filing a petition at the US bankruptcy court.
A petition can be voluntary or it can be filed by the creditors who must meet a few requirements.
Voluntary petitions for filing chapter 11 ask for basic information such as the debtor's name, tax id number, social security number, address and the location of whatever principal assets the debtor may have.
The standard regulation for filing chapter 11 is when any business gets into trouble and is unable to balance its creditors or debt.
Once chapter 11 is filed, it is understood that the business will continue trading under the bankruptcy court's supervision of its debts and all its contractual obligations.
In such a situation, the court has every right to cancel a part of or the entirety of the company's debt.
Once it has been given a financial reprieve, the company can start over afresh.
Keeping in mind the size of the business and the intricacy of the bankruptcy, a company which has filed for chapter 11 may become free of all debts within a few months or may recover over a period of several years.
A few of the contracts or debts that are eligible to be cancelled under chapter 11 include contracts from vendors and customers, unsecured loans and real estate rents.
At times, the debt collected by the company may outweigh the assets owned by it.
In such a situation, the owners of a company or the stockholders are left with nothing.
In case of the company failing to recover its debt, the ownership is transferred to the creditors who are expected to make a profit out of the company, if only to recover their own losses.
The basic principle behind filing chapter 11 is that every company should be given a chance to pay back its creditors.
It allows reorganization options to businesses, corporations and individuals under the United States bankruptcy laws.
It is unfortunately mostly used by corporate entities which end up losing all their money.
In fact, a case which is filed under chapter 11 is also popularly referred to by the term 'reorganization' bankruptcy.
The process of filing chapter 11 starts with filing a petition at the US bankruptcy court.
A petition can be voluntary or it can be filed by the creditors who must meet a few requirements.
Voluntary petitions for filing chapter 11 ask for basic information such as the debtor's name, tax id number, social security number, address and the location of whatever principal assets the debtor may have.
The standard regulation for filing chapter 11 is when any business gets into trouble and is unable to balance its creditors or debt.
Once chapter 11 is filed, it is understood that the business will continue trading under the bankruptcy court's supervision of its debts and all its contractual obligations.
In such a situation, the court has every right to cancel a part of or the entirety of the company's debt.
Once it has been given a financial reprieve, the company can start over afresh.
Keeping in mind the size of the business and the intricacy of the bankruptcy, a company which has filed for chapter 11 may become free of all debts within a few months or may recover over a period of several years.
A few of the contracts or debts that are eligible to be cancelled under chapter 11 include contracts from vendors and customers, unsecured loans and real estate rents.
At times, the debt collected by the company may outweigh the assets owned by it.
In such a situation, the owners of a company or the stockholders are left with nothing.
In case of the company failing to recover its debt, the ownership is transferred to the creditors who are expected to make a profit out of the company, if only to recover their own losses.
The basic principle behind filing chapter 11 is that every company should be given a chance to pay back its creditors.
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