Process

• When a Chapter 11 bankruptcy is granted, an automatic stay is put in place, meaning that creditors can no longer attempt to collect debts. The firm is then given the ability to cancel certain contracts, known as executory contracts, if that will benefit the firm. Creditors are paid according to priority, with secured creditors being paid first, followed by unsecured creditors. A judge must approve a restructuring plan that outlines the debts to be repaid and the changes that must be made to the firm.
  
  

Benefits

• Chapter 11 bankruptcy benefits a firm because it allows the firm to continue operations, unlike Chapter 7 bankruptcy, but it still provides protection against creditors. Chapter 11 bankruptcy can also benefit creditors because allowing a firm to continue operating can allow it to generate more revenue to be paid to creditors. Chapter 11 bankruptcy is, generally, only permitted when it is apparent that creditors will receive more money than they would through liquidating the firm.
  
  

Drawbacks

• Chapter 11 bankruptcy should be viewed as a last option for firms. When a firm enters a Chapter 11 bankruptcy it can no longer operate independently, but must abide by court rulings and the bankruptcy plan approved by the court. This means that a firm will not be free to make its own decisions and will be tasked primarily with repaying creditors. Although some firms are able to continue operating after Chapter 11 bankruptcy, many must eventually enter Chapter 7 bankruptcy which involves ceasing operations and liquidating the company.
  
  

Individual Filings

• Chapter 11 bankruptcy is also available to individuals (or a married couple), however most individuals pursue Chapter 7 bankruptcy due to the lower associated costs. An individual must file a certificate of credit counselling with the court, to show that she has attended credit counselling, and a debt repayment plan that has been created through the credit counselling program. An individual must also include financial information including details of payments from employers in the previous 60 days, a statement of monthly income and a record of any interest in qualified education or tuition accounts.