Chapter 11 Bankruptcy Protection

A company may seek chapter 11 bankruptcy protection in order to reorganize the business and, hopefully, get a second chance of making a success. Individuals can also file for a chapter 11 bankruptcy when debts become overwhelming. However, filing for any type of bankruptcy is a step that should not be taken lightly. Every other avenue for bettering one's financial condition should be explored before taking this one. Though a fresh start may sound appealing, a bankruptcy can wreak havoc on a person's emotional well-being, a marriage, family relationships, and, of course, on the individual's credit history and FICO score. The complicated rules are governed by the United States Bankruptcy Code (USBC) and the Federal Rules of Bankruptcy Protection. This will seldom be a do-it-yourself legal proceeding as there are so many rules and guidelines that must be followed.

The chapter 11 bankruptcy protection may be either voluntary or involuntary. In a voluntary case, an individual, a married couple, or a business files for the protection on their own. In an involuntary situation, the creditors can petition the court. However, these creditors must meet certain requirements. It seems more likely that an involuntary situation would arise with a business than with an individual. The business's creditors may realize that there are financial difficulties at the company. By joining together, the creditors may be able to force the company to reorganize before the economic matters get even worse. However, the complex laws governing these situations will need to be carefully followed every step of the way. The cost of filing for protection is not cheap. As provided in the USBC, the court filing fee for chapter 11 bankruptcy protection is $1,000. There is also a $39 administrative fee.

It's very sad when individuals and families get into situations where they face possible bankruptcy. Some people find themselves in this type of situation because of poor financial decisions or a tendency to overspend. Others may be forced into a chapter 11 bankruptcy protection situation because of high medical bills or other financial obligations that have spiraled beyond control. In today's economic climate, many families are facing difficulties because of increased monthly mortgage payments to rising adjustable rate mortgages. Perhaps these individuals made a poor financial decision by agreeing to an adjustable rate mortgage, but now they are in a situation that is causing heartbreak. Other families are finding that their homes have decreased in value to such an extent that they are caught with an upside down mortgage. For any or all of these reasons, individuals may choose to seek chapter 11 bankruptcy protection in order to conserve some assets. An Old Testament writer recorded this small prayer: "Two things have I required of thee; deny me them not before I die: Remove far from me vanity and lies: give me neither poverty nor riches; feed me with food convenient for me: Lest I be full, and deny thee, and say, Who is the LORD? or lest I be poor, and steal, and take the name of my God in vain" (Proverbs 30:7-9). Wisdom appears to favor this middle ground.

But for those who are already caught in the clutches of debt may need to give serious consideration to applying for chapter 11 bankruptcy protection. As part of the process, the court requires specific documents in addition to the court costs and filing fee. For example, an individual or married couple needs to provide a certificate from an approved credit counseling agency that indicates the agency provided credit counseling within 180 days of filing for the protection. The court also requires a copy of any debt repayment plan that was created as part of the credit counseling process. In addition, the court requires specific economic information. The individual or couple needs to provide at least the following: a listing of all assets and liabilities; current income and expenditures; a schedule of any financial contracts; a schedule of any unexpired leases (for example, on a vehicle or equipment); and a statement of financial affairs. The court may also ask for information about future increases in income. The trustee monitors the individual's progress throughout the process and may impose requirements for the debtor to meet.

A business that seeks chapter 11 bankruptcy protection will also need to provide the court with all required and requested economic documentation. If the business is a sole proprietorship or a partnership, the owners' personal assets may be at risk. The court trustee may require that the personal assets be used to meet the company's liabilities. Personal assets are seldom an issue when the business is a corporation. If the business is publicly traded on the stock market, the Securities and Exchange Commission (SEC) has an interest in any bankruptcy proceedings. Such companies are required to file a form with the SEC and to continue filing all required reports regarding the company's securities. In chapter 11 bankruptcy protection, the company's management is usually allowed to continue with the day to day operation, but significant business decisions are made by the court. Typically, creditors fall into three categories. When it comes to repaying obligations, the creditors who have secured loans are first in line. Unsecured creditors are next. Often, a creditors committee of the largest unsecured creditors will be set up to oversee the bankrupted company's operations. Third are the shareholders. They may never get back their investment as the existing shares may be canceled as part of the reorganization process.

Add to: File Insurance Business article Teen Photo Images