To anyone who runs a business or is at least accustomed with the complex world of finances there is no greater fear than hitting rock bottom – bankruptcy. This phenomenon doesn’t occur suddenly, but follows a number of steps like, for example, what is called Chapter 11 Bankruptcy. Chapter 11 Bankruptcy information can be found nowadays in various guides and materials regarding bankruptcy, although most people and companies prefer to contact legal counselers for advice.
But what exactly is, legally speaking, bankruptcy? Bankruptcy is the final stage of the insolvency procedure, where the debtor applies for liquidation of its assets to cover liabilities, followed by removal from the register in which the debtor is registered.
What is the Chapter 11 of bankruptcy and how does it work? In a fictionalized version (non-legal), these are the steps of the procedure:
- As a result of the inability to pay one’s dept correlated with the impossibility of reconciliation with the creditors, bankruptcy is officially declared. Creditors (who must recover the money) or the borrower (debtor) submit a petition to the competent court.
- The debtor’s assets are protected from legal execution, and the operations are conducted (supervised) by a bankruptcy manager. This strategy can be used as tactical bankruptcy, for those who have a hard time dealing with the harsh “financial jungle”.
- The debtor is entitled to make a restructuring plan (including the establishment of partnerships) in 120 days without the possibility to be influenced by any creditor. The purpose of the plan is that – after the reorganization and recovery operations – the company “cured” can satisfy their creditors, including interest and damages.
- The debtor’s reorganization plan is brought to the creditors’ attention for acceptance, which is anonymous. If one creditor does not agree with the plan and if this situation is irreconcilable, the plan is rejected.
- If the plan is accepted, it is applied immediately, for a term of 120 days. Under certain conditions, depending on the complexity of the restructuring, the period may reach 20 months.
- Also, if the plan is rejected, creditors have the right to make their own plan. If the debtor agrees with creditors’ plan, the plan applies.
- If the creditors’ plan is not accepted by the debtor, the judge will rule the liquidation of the company in dept (or the appropriate measures in case of individuals).
These are the main steps of Chapter 11 of bankruptcy and it is vital for people who have their own business to know them, to avoid months of law suits and headaches if God forbid, such situations occur.