The organization’s aims with a chapter 11 business bankruptcy are to:
The legal remedies for insolvency in business are covered by chapters 11 and 7 of the US Bankruptcy Code. Chapter 11 relates to corporate restructure, whereas chapter 7 liquidates the entire business so that it ceases to operate. This is also known as a "straight bankruptcy". There is also chapter 12 for some businesses but it’s only available to "family farmers" or "family fishermen".
Chapter 13 also provides for debt relief for businesses, however it is relevant only to sole proprietorships. This chapter discharges debt using a monthly repayment plan for 3 to 5 years.
Companies filing under chapter 11 usually plan to remain in business while negotiating with creditors to reorganize their debt.
Until an agreement is reached, the company has the protection of the bankruptcy court. Usually, the debtor remains “in possession” of the business and has the powers and responsibilities of a trustee. The business can continue to operate, and may even borrow new money with approval from the court while restructuring takes place.
All actions during a chapter 11 business bankruptcy must be approved by the court. In addition, creditors must file a Proof of Claim, with supporting documents that illustrate how much they believe they’re owed.
There are several factors that determine the hierarchy of creditors during a liquidation process. Here are examples of common priority claims: