Chapter 11 bankruptcy is a type of reorganization that allows corporations and companies to manage overwhelming debts. Unlike other forms of bankruptcy, chapter 11 bankruptcy does not liquidate an individual’s assets but instead creates a plan that allows the company to pay off their debts over time.
Due to the lengths of time necessary to create a reorganization plan and get creditors to accept said plan, chapter 11 bankruptcy can take months if not years to resolve. In general, the court allows a year and a half to create the reorganization plan, then allows 20 months for creditors to accept it. This places the average resolution window for chapter 11 bankruptcy between 6 and 24 months.
Despite being petitioned for because of financial hardship, chapter 11 bankruptcy can be quite pricey. There is a standard filing fee of $1,167 to begin the case as well as a miscellaneous administrative fee of $571. In addition to one-time payments, there is also a quarterly court fee that ranges from a few hundreds to tens of thousands of dollars. This means that the longer the bankruptcy takes, the more costly it will be for the petitioner.
Once a chapter 11 case has been settled, both the creditors and debtors are bound by the chapter 11 agreement. The company will be bound to operate under the terms of the agreement, and in exchange will be allowed additional time to settle debts and creditors will be forced to abide by the timeline set out by the chapter 11 plan.