Chapter 11 is a business reorganization bankruptcy that permits businesses to continue operations while also reorganizing debts through a debt repayment plan. As ominous as “filing for bankruptcy” sounds, Chapter 11 bankruptcy is often a business strategy, not a proverbial “white flag” raised in defeat. Companies often emerge from Chapter 11 bankruptcy stronger and more able to compete in changing economic and market conditions.
In Chapter 11 bankruptcy cases, the court oversees a manageable plan to repay, in part if not in whole, to those whom the company owes money. Chapter 11 allows business interests to go forward, preserving and creating jobs and contributing to the economy. During the COVID-19 pandemic, several lodging and restaurant companies filed for Chapter 11 bankruptcy.
The process is expensive and complicated, which is why small businesses including independent restaurants and hotels have avoided it. Congress recognized this problem and created Subchapter V of Chapter 11, which is described in the next section. For example, in a traditional Chapter 11 case, the debtor must file and distribute a disclosure statement to provide creditors with information regarding the plan. Creditors often dispute the adequacy of the disclosure statement, which leads to delays and court battles.