Chapter 11

Chapter 11 is a bankruptcy proceeding in which an entity can reorganize its financial situation while under court protection, after which it can continue in operation. A business typically seeks Chapter 11 protection when it cannot meet its ongoing obligations on a timely basis and is unable to restructure them via direct negotiations with lenders and creditors. During the court proceedings, the existing management team may be allowed to continue running the business. However, in cases of gross negligence, the court may appoint a trustee who is empowered to run the business. The business is given the first chance to propose a plan of reorganization. If the business does not do so or the plan is not approved by creditors or the court, then the creditors may propose a reorganization plan.