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The American Business Institute recently proposed an overhaul of Chapter 11 bankruptcy in order to make filing easier for businesses in the United States. Chapter 11 is a chapter in the Bankruptcy Code. It is a form of bankruptcy that is only to be used for businesses and corporations, and it is not for individuals. Chapter 11 requires a business to restructure the company in order to pay back its creditors.

There are three types of bankruptcies that businesses can file for, which are:

• Chapter 7
• Chapter 11
• Chapter 13

Each of these bankruptcy chapters have their own sets of rules and are to be considered based on the actual situation of the filer. For example, a Chapter 13 bankruptcy may be helpful to individuals who can afford to repay debt by making payments. Sole proprietor businesses can also file for Chapter 13 bankruptcies.

If a business is in such financial distress that it cannot recover from its debts, the owners may want to instead file a Chapter 7 bankruptcy. This chapter allows both business entities and individuals to annul their debts by liquidating assets. A trustee sent by the court system supervises this process.

Lastly, there’s the option for businesses to file a Chapter 11 bankruptcy. This should be the chapter of choice if the business owner would like to continue to run the business but needs to restructure its operations. Chapter 11 bankruptcies can be extremely complex, yet they can give a business owner the relief the business needs.

What Chapter 11 Bankruptcies Entail

The first step when filing for Chapter 11 bankruptcy is to send the court system a restructuring plan for the company. This plan is then submitted to the creditors and they are given a vote on the plan. When the creditors review and approve the plan, and the court system also approves the plan, the court would then assign a trustee to oversee the process of reorganization. In some cases, this process can take up to 20 years or more.

In the event that the court does not approve of the bankruptcy plan a company submits, the business is required to write up a new bankruptcy plan and to resubmit it. This approval can take a year or even longer in some cases.

The American Bankruptcy Institute reviewed the Chapter 11 bankruptcy laws and proposed changes in order to make the bankruptcy process easier on business owners. The organization proposed four major changes, which are the narrowing of applicability to leveraged buyouts, the narrowing of the repossession safe harbors, the conforming of the Bankruptcy Code with the Federal Deposit Insurance Act and the Dodd-Frank Act's Orderly Liquidation Authority Standards, and clarifying that the safe harbors should not affect the company’s ordinary supply contracts. These changes have not all been put in place yet, but could be of great benefit if enacted.

Bankruptcies are a life-changing experience for individuals and business owners who choose this method of debt relief. While it can lift a huge burden off the shoulders of citizens and entities, the services of a qualified attorney are vital to ensure the process is done correctly.

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