Chapter 11
(Redirected from Chapter 11 bankruptcy protection)
Chapter 11 is a part of the US bankruptcy code.
When a troubled business decides that it is unable to service its debt or pay its creditors, it can file (or be forced by its creditors to file) with a federal bankruptcy court for bankruptcy protection under either Chapter 7 (liquidation) or Chapter 11 (reorganization). A Chapter 7 filing means that the business intends to sell all its assets, distribute the proceeds to its creditors, and then cease operations. A Chapter 11 filing, on the other hand, is an attempt to stay in business while a bankruptcy court supervises the "reorganization" of the company`s contractual and debt obligations. The court can cancel, in all or in part, some or all of the company`s debts and its contracts, so that the company can make a fresh start. Often, if the company`s debts exceed its assets, then at the completion of bankruptcy the company`s owners (stockholders) all end up with nothing -- all their rights and interests are terminated -- and the company`s creditors end up with ownership of the newly reorganized company, in the hopes that it will eventually succeed financially as compensation for their losses.