In contrast, Chapter 7 governs the process of a liquidation bankruptcy (although liquidation can go under this chapter), while Chapter 13 provides a reorganization process for the majority of private individuals.When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11. § 1108 empowers the trustee to operate the debtor's business.In Chapter 7, the business ceases operations, a trustee sells all of its assets, and then distributes the proceeds to its creditors. In Chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business.Any residual amount is returned to the owners of the company. Chapter 11 affords the debtor in possession a number of mechanisms to restructure its business.This period allows the debtor 120 days from the date of filing for chapter 11, to propose a plan of reorganization before any other party in interest may propose a plan.
If a plan cannot be confirmed, the court may either convert the case to a liquidation under chapter 7, or, if in the best interests of the creditors and the estate, the case may be dismissed resulting in a return to the status quo before bankruptcy.
If at least one class of creditors votes against the plan and thus objects, the plan may nonetheless be confirmed if the requirements of cramdown are met.
In order to be confirmed over their objection the plan must not discriminate against that class of creditors, and the plan must be found fair and equitable to that class.
If the case is dismissed, creditors will look to non-bankruptcy law in order to satisfy their claims.
Like other forms of bankruptcy, petitions filed under chapter 11 invoke the automatic stay of § 362.
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In Chapter 11, in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business's earnings.