Bankruptcy can be confusing. One reason that some people find it so confusing is that there are three different types of bankruptcy, and each of the three types applies to a different set of circumstances. For that reason, some people may not be fully aware of the options that are available with each type of bankruptcy. For example, Chapter 11 bankruptcy is most commonly associated with businesses. What many people do not realize, though, is that some individuals may be able to file for bankruptcy under Chapter 11 if the amount of their debt disqualifies them from filing for bankruptcy under Chapter 13.

Another thing that people may not know about about Chapter 11 bankruptcy is that it does not always mean that a company is going out of business. This common misconception may simply be due to a confusion of Chapter 7 and Chapter 11, because Chapter 7 business bankruptcies do involve liquidation of assets and winding up of the business. Chapter 11 is actually designed to function as a tool for financial reorganization. Some of a business’s assets may be liquidated as part of such reorganization, but the overall goal of the procedure is to restructure the company’s finances so that the business can continue its operations.

It is not always obvious that a company is going through a Chapter 11 bankruptcy. A business which has filed for bankruptcy under Chapter 11 may appear, on the outside, just like it did every other day. The owners and managers often continue to do business as “debtors in possession”. This means that they run their business while under the watchful eye of the bankruptcy court, and that they are required to provide the bankruptcy court with regular financial reports. Sometimes, there are a few changes to the internal operation of the business, such as changes in leadership, and there are likely to be additional changes to the operations of the business as the case progresses. Many of the changes that take place are not visible to customers or to people outside of the company.

If you are wondering whether Chapter 11 bankruptcies are more complicated than bankruptcies which are filed under Chapter 7 or Chapter 13, the answer is yes. One reason that Chapter 11 bankruptcies are more complicated is that businesses have many different kinds, or classes, of creditors. Under a Chapter 11 reorganization plan, the various classes of creditors vote on whether to approve or disapprove any reorganization plan which is proposed by the debtor in possession. The more creditors a business has, the more difficult it can be to get all of them to agree to accept a proposed reorganization plan. To further complicate things, the bankruptcy court also gets to vote on whether to approve or disapprove a proposed plan. The number of creditors, the variety of classes of creditors, and the voting aspect of Chapter 11, which is not a part of  other bankruptcies, can all add up to a situation that is complex.

Despite the apparent complexity of a Chapter 11 bankruptcy, it is important that business owners and eligible individuals understand that Chapter 11 can be a useful tool for moving forward from financial difficulties. If you or your company would like more information about Chapter 11 bankruptcy, experienced Kansas City Bankruptcy Attorney Douglas Breyfogle may be able to help you. To schedule your free and confidential consultation with Mr. Breyfogle, please call us today, at (913) 742-8700.