Chapter 11 Reorganization
What does "Chapter 11 Reorganization" mean in law?
Chapter 11 of the Bankruptcy Code allows a debtor, typically a business but sometimes an individual with substantial debts, to reorganize its financial affairs while continuing operations under court supervision. The debtor usually remains in possession of its assets as a debtor in possession (DIP) and proposes a plan of reorganization that must be accepted by creditors or, failing that, confirmed through the cramdown mechanism under 11 U.S.C. section 1129(b). The plan restructures debt obligations, may modify contract terms, and aims to preserve going-concern value. Chapter 11 is designed to maximize the value of the estate for all stakeholders rather than forcing piecemeal liquidation.
Definition
Chapter 11 of the Bankruptcy Code allows a debtor, typically a business but sometimes an individual with substantial debts, to reorganize its financial affairs while continuing operations under court supervision. The debtor usually remains in possession of its assets as a debtor in possession (DIP) and proposes a plan of reorganization that must be accepted by creditors or, failing that, confirmed through the cramdown mechanism under 11 U.S.C. section 1129(b). The plan restructures debt obligations, may modify contract terms, and aims to preserve going-concern value. Chapter 11 is designed to maximize the value of the estate for all stakeholders rather than forcing piecemeal liquidation.
Example
A major airline filed for Chapter 11 reorganization, allowing it to continue flying routes while renegotiating lease agreements and reducing its debt load under a court-approved plan.