Startup Funding Espresso – How Does Chapter 11 Bankruptcy Work?

How Does Chapter 11 Bankruptcy Work?

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Chapter 11  bankruptcy reorganizes the company and sets up a debt repayment plan.

Here is how Chapter 11 works:

It starts with filing a petition with the bankruptcy court.

The debtor must file a list of assets and liabilities and a list of income and expenses.

The debtor stays in possession of the company and assets during the bankruptcy.

The debtor creates a proposed plan for repayment of debts for review by the bankruptcy trustee.

If the plan asks for any debt forgiveness from the creditors, then the creditors must approve the plan as well.

The debtor continues to operate the business while awaiting approval from the creditors.

The company that is a debtor in possession acts as the trustee of the company.

The debtor in possession can retain accountants, attorneys and others to assist with the filings. 

For companies that are sole proprietors, the filings include both the assets of the owner as well as the business.

A subchapter 5 under the Chapter 11 bankruptcy can speed the process of plan approval.

The bankruptcy trustee monitors the progress of the plan filing and approval.

During the process, all creditors are given a Stay which suspends any debt collections.

The debtor has 18 months to file a plan. 

 

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