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Chapter 11, bankruptcy is often referred to as a “reorganization” bankruptcy. Chapter 11 bankruptcy is often employed where the debtor is a business: a corporation, partnership, or sole proprietorship. The outcome of a Chapter 11 filing will often depend on the particular business structure at issue, as corporations with shareholders have different asset liabilities than sole proprietorships. Chapter 11 bankruptcy is a more complicated process, typically involving an analysis of secured versus unsecured creditors, and the priority of their various and competing claims. As in Chapter 7 and 13 bankruptcies, the role of the trustee in a Chapter 13 case is a pivotal one. The trustee in a Chapter 13 case may impose disclosure requirements on the debtor regarding matters such as compensation paid out, and the general operating procedures of the business. A “creditor’s committee” may also be appointed by the trustee to look into the operation, expenses, and income of a business, and the committee may, with approval from the trustee, even appoint third-party attorneys or consultants to oversee the committee’s activities. All this is done with an eye towards making the business profitable enough so that certain kinds of debt obligations may be satisfied, while minimizing the economic waste inherent in a business simply “going under.” In most Chapter 11 cases, the debtor becomes what is known as a “debtor in possession,” maintaining most of the control and stake in the business under the oversight of the trustee. Chapter 11 proceedings often allow the debtor in possession to secure additional lines of credit to meet operating expenses by giving new lenders priority in those loans. In some cases, the trustee may even allow the debtor in possession to be discharged from certain contract obligations, while being protected from lawsuits pertaining to those agreements. Chapter 11 bankruptcy has been used to recuperate businesses ranging in size from single individual sole proprietorships to the largest international firms, such as General Motors Corporation.
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