Businesses filing bankruptcy most often prefer to file under Chapter 11 of the U.S. Bankruptcy Code because it permits them to keep their operation running throughout the bankruptcy proceeding without liquidating their business assets. Businesses filing under Chapter 11 propose a reorganized payment play by which they can repay their debts over a period of years. If the bankruptcy court approves this plan it becomes binding on the business, which must then abide by the plan’s terms. Before the plan becomes binding, it must satisfy a number of requirements, including creditor approval. The bankruptcy may be converted to Chapter 7 if a plan cannot be agreed upon, which will require liquidation of assets. For this reason, businesses must do their best to create a plan that will both appease creditors and allow them to make timely payments.
A Chapter 11 proceeding varies in length depending on the complexity of the business’ financial trouble. The entire proceeding could last anywhere from a few months to several years. If the business satisfies the reorganization plan, it will emerge solvent at the end of the proceeding. If the business fails to make payments according to the plan, liquidation may follow, either under Chapter 11 or by converting the bankruptcy to Chapter 7.
