Chapter 11 Bankruptcy

Unlike chapter 7 and 13 bankruptcy claims; which are for individuals, chapter 11 bankruptcy is meant for corporate claimants and is a great deal more expensive to file as far more money and debt is usually involved. Companies like WorldCom and Enron recently filed for chapter 11 bankruptcies. Federal bankruptcy laws are there to govern how companies go out of business or recover from crippling debt. A bankrupt company, the "debtor," might use Chapter 11 of the Bankruptcy Code to "reorganize" its business and try to become profitable again. When this happens, the management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court before they can be put into effect. Most publicly held companies will file under Chapter 11 rather than Chapter 7 because they can still run their business and control the bankruptcy process. Chapter 11 provides a process for helping to rehabilitate the company's faltering business. Sometimes the company successfully works out a plan to return to profitability; sometimes, it liquidates instead. Under Chapter 11 reorganization, a company usually keeps doing business and its stock and bonds may continue to trade in our securities markets. Since they still trade, the company must continue to file SEC reports with information about significant developments. For example, when a company declares bankruptcy, or has other significant corporate changes, they must report

it within 15 days on the SEC's Form 8-K or face the possibility of legal action from the Federal Government. When a company files for chapter 11 bankruptcies, the U.S. Trustee, the bankruptcy arm of the Justice Department, will appoint one or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt. The plan has to be accepted by the creditors, bondholders, and stockholders, and confirmed by the court. But, even if creditors or stockholders vote to reject the plan, the court can disregard the vote and still confirm the plan if it finds that the plan treats creditors and stockholders fairly.