Chapter 11 bankruptcy code – What is that?

The Chapter 11 bankruptcy code spells refuge to many companies who are on the brink or over the edge of bankruptcy. Under this clause, a company will be protected by the Court, provided the company will allow the Court to appoint a trustee who would operate the debtor’s business toward financial recovery..

Under the Chapter 11 bankruptcy code, the debtor will remain in possession of the company; while the trustee gains the powers to re-structure the company and redirect it towards financial freedom. The debtor is empowered by the Court to accept or reject any new contracts. The debtor also has the freedom to look for and obtain loans or other means of financing that would be required to salvage the company.

During the imposition of the Chapter 11 bankruptcy code, the debtor is protected from litigation and creditors as it enjoys a Court ordered stay against debt collection.

Creditors in such cases, however, can file against the invocation of the Chapter 11 bankruptcy code by the company and demand payment. The Court would then hear the complaints of the  creditors and rule whether the restructuring of the company can solve the present financial crisis to cover all debts. If the court determines that the company should be allowed to recover financially, it would then order the creditors to stop collection attempts.

Source:  Chapter 11 bankruptcy code – What is that?

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