Filing for Chapter 11 bankruptcy is what many companies do if they fall into a situation where they have a huge amount of debt and don't have the confidence that it can pay all that money back to lenders. It is a complicated process that results in a plan for reorganizing a company.
Filing for Chapter 11 bankruptcy is what many companies do if they fall into a situation where they have a huge amount of debt and don't have the confidence that it can pay all that money back to lenders. It is a complicated process that results in a plan for reorganizing a company. This plan can take months at best; it can take years at worst. Let's get into the process of filing for bankruptcy.
Process of Filing for Chapter 11.
Filing for Chapter 11 means that the company has enough debt for it to seek outside help from the government. The US Trustee, which is the bankruptcy division of the Justice Department, will form a group of people into a committee or multiple committees. These committees will draft a plan that serves the interests of the stock holders, the note holders, and the lending institutions.
The committee or committees work with the company to create the plan for reorganization, and once this plan is created, it must be submitted for approval. It must legally comply with the bankruptcy code in order for it to put into action. This is where much of the delay can occur, waiting for the US Trustee to approve of the plan.
In addition, the Title 11 bankruptcy laws require companies to first obtain profession debt counseling advice from outside professionals. This can eat up a sizable amount of what little money the company may have left. Though it's a popular choice with many companies, filing for Chapter 11 may not be the greatest solution when compared to debt management companies that can help companies get out of debt right away.