Creditors' Resource

What is Chapter 11 Bankruptcy?

    Chapter 11 of the United States Bankruptcy Code is titled “REORGANIZATION”.

     The goal of a Chapter 11 case is to have the Court enter an order confirming a Chapter 11 Plan. It can be a plan of liquidation or a plan of reorganization. In either case it is a contract between the various parties in a chapter 11 case setting forth how the bankruptcy pie is going to be split up.

    A unique aspect of Chapter 11 is that usually there is not an appointed Bankruptcy Trustee. In most cases filed under Chapter 11 the Debtor plays the roll of Trustee. Many creditors that I get calls from are surprised. “Richard, the same management that got the Debtor into trouble in the first place is acting as the Trustee!” I’ll often hear. 

    The notion of Chapter 11 is the rehabilitation of the Debtor. To provide balance to the fact that the Debtor is acting as Trustee, the Bankruptcy Code provides for the appointment of an Official Committee of Creditors (“Creditors Committee”). I’ll write more about Creditors Committees latter, but suffice it to say that a Creditors Committee can play the roll of a very powerful watchdog.

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