What Are the Benefits of Filing a Chapter 11 Bankruptcy?

When filing a petition for Chapter 11 bankruptcy, the debtor benefits from an automatic injunction of all lawsuits, foreclosures, repossessions, bank levies, wage garnishments, and other collection activities. The automatic stay is immensely helpful for debtors who are facing aggressive collection action by creditors and is the first step in reorganization.

Avoidance and Recovery of Certain Involuntary Transfers

Once a debtor is in bankruptcy protection, the debtor can avoid and recover certain bank levies, wage garnishments, lien notices, even repossessions of vehicles or equipment that occurred prior to the filing of the bankruptcy.

Preservation of Your Business

Debtors that are operating a business can continue business operations in Chapter 11. This means that the business name, goodwill, and customer base are not lost.

Temporary Deferral of Obligations Incurred Pre-Bankruptcy Petition

While in Chapter 11 reorganization, debtors may be able to temporarily defer making certain rent or installment debts.

Adjustment of Interest Rates

One of the advantages of chapter 11 is that debtors can use the reorganization process to adjust certain interest rates. For example, excessively high-interest rates on loans secured by commercial equipment, vehicle, or certain real estate can be lowered.

Cure Defaulted or Accelerated Obligations

Debtors can use the chapter 11 process to cure defaults on obligations such as mortgages or leases. Often, when a borrower defaults on legal obligations, the lenders "accelerate" that obligation. This means that the lender asks that the entire amount of the debt be paid in one lump sum payment. Debtors in chapter 11 reorganization may be able to cancel the debt acceleration and return the obligation to pre-default status.

Assume or Reject Executory Contracts and Unexpired Leases

Debtors may be able to "pick and choose" those equipment leases, real estate leases, or other long-term (or "executory") contracts they wish to maintain. Debtors can reject any contract that they believe is not economically profitable.

Sell Property Free and Clear of Liens and Interests

The Chapter 11 process may be used to sell assets that are encumbered by liens. The chapter 11 court has the authority to allow a buyer to purchase those assets free and clear of the encumbrances.

Extend Payment of Unsecured Tax Debts

The bankruptcy code allows Debtors to use the chapter 11 reorganization process to extend the payment of unsecured tax debts for up to five years.

You May Borrow in Post-Petition

Debtors in chapter 11 reorganization may be able to borrow money while in reorganization in order to finance their reorganization.

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