What Happens After a Business Files For Chapter 11 Bankruptcy?

Bankruptcy is a powerful tool that businesses use to restructure their finances and remain in business. If you are struggling financially as a business owner, consider the option to file for Chapter 11 bankruptcy.

In a Chapter 11 bankruptcy, a petition is filed in bankruptcy court by the debtor or in some cases, by creditors of the debtor. When filing for bankruptcy, a business must disclose all of its financial information.

The debtor must file:

  • A list of creditors
  • A schedule of assets and liabilities and current income
  • A statement of financial affairs

After filing, the debtor, referred to now as the debtor in possession, runs normal business operations and the automatic stay goes into effect to stop collections. The business proposes a reorganization plan, which outlines how it plans to pay back its creditors over a fixed period of time. This can include renegotiating debt or downsizing to cut expenses. This is one of the most important documents in a Chapter 11 bankruptcy. Changes can be made to the plan at any time before plan confirmation. After it has been filed, the court will hold a confirmation hearing to resolve any objections and to confirm the plan if it meets all requirements.