Chapter 11
Bad Debt Consolidation by splinder
Filed under Bankruptcy
Chapter 11 is a debt reorganization plan under the United States Bankruptcy Code. It is available to individual corporations and partnerships, but not to individual debtors.[br]
Chapter 11: Overview
Mostly, people equal bankruptcy to liquidation of the debtor’s assets to collect repayment for creditors. However, Chapter 11 is a specialized debt resettlement plan that minimizes the risk of liquidation. This plan calls for mutual agreement between debtor and creditor. According to the agreement, the debtor gets more time to repay the loan amount, while creditors are assured of receiving their money.
When an individual corporation or partnership files a bankruptcy case under Chapter 11, the court restructures the loan amount in-line with the approved debt settlement plan. The organization continues to operate under the superintendence of the court and for the benefit of creditors. Thus, the owner continues to have authority over the company even after bankruptcy is declared. However, if the efficiency or credibility of the owner is questionable, the court can employ a trustee.
Chapter 11: Features
Some of the attractive features of Chapter 11 are:[br]
- The debtor remains the authorized trustee of the business, unless otherwise mentioned in the court order.
- The chapter supports a range of solutions towards debt reorganization. However, the approval of the reorganization plan depends on the endorsement of the creditors and the court.
- A debtor can seek a loan for debt settlement on favorable terms. For this, the debtor has to mark the lending institution as the priority creditor.
- Automatic stay might be available on all the creditors’ actions, including legal claim on the non-exempt assets. However, this stay remains valid for the life and successful completion of the debt settlement plan. If the plan fails midway, creditors can resume legal actions against debtor.
- Debtors have the authority to cancel or lop business contracts for a favorable financial situation.
While debtors highly acclaim Chapter 11, many economists consider it as an escape hatch for bad managers. As Chapter 11 does not propose a management reshuffle, bad managers continue to operate. Also, a company filing for Chapter 11 bankruptcy operates under supervision of the court. This gives an added advantage to the company against its competitors.