how chapter 11 bankruptcy works
chapter 11 is named after a section of the u s bankruptcy code companies that file chapter 11 do so in order to obtain time to reorganize and make a fresh start during a chapter 11 proceeding the court will help a business restructure its debts and assets in most cases the company can continue to operate many large u s companies have filed for chapter 11 bankruptcy at one time or another to stay afloat they include such well known names as general motors united airlines and texaco as well as thousands of other companies of all sizes corporations and partnerships are the most common filers of chapter 11 but in rare cases individuals with a lot of debt who do not qualify for chapter 7 or 13 may be eligible for chapter 11 however the process is not a speedy one as mentioned the debtor called a debtor in possession can generally run the business more or less as usual however in cases involving dishonesty fraud or gross incompetence a court appointed trustee will step in to run the company throughout the bankruptcy proceeding the business is not allowed to make certain decisions without the permission of the courts these include the sale of assets other than inventory starting or terminating a rental agreement and stopping or expanding business operations the court also has control over decisions related to retaining and paying attorneys and entering contracts with vendors and unions finally the debtor cannot arrange a loan that will commence after the bankruptcy is complete in chapter 11 the business or individual filing for bankruptcy has the first chance to propose a reorganization plan these plans may include downsizing business operations to reduce expenses as well as renegotiating debts in some cases plans will involve liquidating all assets to repay creditors if the suggested path is deemed feasible and fair the court will accept it and the process will move forward chapter 11 and small businessthe small business reorganization act of 2019 which went into effect on feb 19 2020 added a new subchapter v to chapter 11 designed to make bankruptcy easier for small businesses the act defined eligible businesses as entities with less than about 2 7 million in debts that also meet other criteria the cares act of 2020 temporarily increased to the debt limit to 7 5 million for bankruptcy cases filed on or after march 27 2020 then in 2022 the bankruptcy threshold adjustment and technical corrections act btatca extended the temporary limit for cases filed on or after march 27 2022 for another two years or until march 27 2024 subchapter v imposes shorter deadlines for completing the bankruptcy process allows for greater flexibility in negotiating restructuring plans with creditors and provides for a private trustee who will work with the small business debtor and its creditors to facilitate the development of a consensual plan of reorganization the justice department says because chapter 11 is the most expensive and complex form of bankruptcy companies generally explore all alternative routes before filing for one chapter 11 examplein january 2019 gymboree group inc a popular children s clothing chain announced that it had filed for chapter 11 and was closing all of its gymboree gymboree outlet and crazy 8 stores in canada and the united states according to a press release from gymboree the company had received a commitment for a debtor in possession financing 30 million in new loans provided by ssig and goldman sachs specialty lending holdings and a roll up of all of gymboree s obligations under a prepetition term loan credit agreement it added that it was continuing to pursue a going concern sale of its janie and jack business and a sale of the intellectual property and online platform for gymboree gap inc announced in march 2019 that it had purchased janie and jack in early 2020 gymboree made its return as a shop in a shop in children s place locations and with a new online store this was the second time in two years that the gymboree group inc had filed for bankruptcy under chapter 11 the first occurred in 2017 when the company was able to successfully reorganize and significantly lower its debts 