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Why would a business choose to file for Chapter 11?

As many of us recognize, bankruptcy is a way to relieve consumers and businesses of seemingly insurmountable debt. With that being said, there are a number of options when filing for bankruptcy. Depending on what you are looking to accomplish with your bankruptcy filing, this will determine and dictate the filing that you choose. The same thing goes for businesses that want to file for bankruptcy. Similar to an individual filing, when a corporation files for bankruptcy it is done because there is a need for financial assistance. The type of filing chosen will either keep the business together and running under a reorganization plan, dissolve the business or provide federal protections so that the business can stay afloat and maintain itself as a business. The latter is known as a Chapter 11.

A Chapter 11 bankruptcy filing occurs when a business owner decides that they need some level of federal assistance in business matters, specifically financial matters. Since this is a legal filing, there are certain requirements that have to be met prior to the filing being accepted by the court. For instance, the business would need to provide information pertinent to its assets and liabilities as well as to the overall financial standing of the company. Additionally, a reorganization plan must be in place specifically if the company wants to file under Chapter 11.

Unlike a Chapter 13 filing, which also includes a reorganization plan for businesses, the Chapter 11 filing requires a bit more with respect to the reorganization plan. The company must not only disclose its financials and how they intend to proceed under Chapter 11, but also once this is done, the creditors have the ability to vote on the plan. Furthermore, the court presiding over the Chapter 11 procedures is given a certain amount of discretion in supervising this process.

Although Chapter 11 can be a viable option for business owners, looking at how the filing will impact the business is important and necessary.

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