Business Chapter 11 Overview In Chapter 11 bankruptcies, which are usually filed by businesses and more rarely by individuals, the commercial debtor is usually allowed to stay in business throughout the bankruptcy proceeding, as a debtor-in-possession. A business debtor may only operate independently in its ordinary course of business. Transactions outside the ordinary course of business require court approval such as the sale of equipment or the taking on of additional capital. A Chapter 11 proceeding is initiated by filing a petition, but a trustee is not automatically appointed. Although the bankruptcy judge may decide to appoint a trustee in a Chapter 11 case, it is the exception rather than the rule. As in Chapter 7, the filing of the bankruptcy petition stops creditors from attempting to collect their debts. The debtor has time to file a proposed plan of reorganization. The plan of reorganization sets forth in detail how the debtor intends to conduct its business and explains how the operation of this business assists in the additional payment to creditors, in a way that it would pay more than if the business assets are liquidated and the proceeds were used to pay the creditors. From a practical perspective, many companies wait too long and are too far into the financial hemorrhage in order to turn the operation around. Like most situations, debtors should gain legal counsel earlier, since many matters can be addressed prior to the filing of the Chapter 11, in order to have a softer landing and better probability of having a successful turnaround. In some situations, creditors may instead or also propose plans of reorganization. Creditors are divided into classes with varying rights depending upon the types of debt they hold. The approval process involves negotiation and input from creditors. Ultimately, the court must approve a plan. In some cases, the court approves the plan even though some of the creditors did not. If no plan is approved, however, the bankruptcy is often converted to Chapter 7 liquidation or may be dismissed. In sophisticated businesses, where the unsecured debts may be significant, the court may allow for the appointment of a creditors’ committee, so that they can engage the Debtor and the Court in proposals along the way, in order to assure their repayment.