Function

• The purpose of chapter 11 bankruptcy is to allow companies that have overextended themselves financially to get some relief. With this type of bankruptcy, the business often offers equity positions to its creditors. They may also negotiate with a creditor to provide them with a flexible repayment plan. A bankruptcy trustee oversees the process and ensures that the company follows through on its promises. It can also result in some debts being forgiven after the plan is completed.
  
  

Filing

• In order to obtain chapter 11 bankruptcy protection, the first step of the process is filing with the local bankruptcy court. The owner of the business must file a petition for bankruptcy protection with the court system. As part of the filing of chapter 11, the business must pay a $1,000 case filing fee and a $39 miscellaneous fee for administration (fees effective as 2010). If the business cannot afford to pay the fees in a lump sum, they may be able to negotiate a payment plan.
  
  

Trustee

• One of the most important elements of the chapter 11 process is the bankruptcy court trustee. The trustee is an individual that has been appointed by the court in order to oversee certain bankruptcy cases. The trustee sits down with the company and helps develop a repayment and reorganization plan. The trustee talks to the creditors and helps them agree to the repayment terms. Then the trustee oversees the entire plan to make sure that the company adheres to their end of the deal until the debts are paid in full.
  
  

Automatic Stay

• The court issues an automatic stay during the case. The automatic stay is a court order that stops any collection actions or judgments against the creditor. When this is issued, the creditors can no longer attempt to collect any debt from the debtor. They also cannot repossess any property or other items to remedy debts. This provides some relief for the company and eliminates the possibility of losing any of their equipment or goods.
  
  

Conversion

• In some cases, the debtor may be able to convert their chapter 11 bankruptcy case to a chapter 7 case. If it is determined that the debtor does not have enough income to make the payments required to repay their debts, the trustee may recommend moving over to a chapter 7. This type of bankruptcy would completely eliminate most of the debts of the company; however, the company's assets are liquidated to pay the outstanding debt and the company would also end up going out of business.