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Introduction to Chapter 11

Originally published: October 2013

Businesses (and certain individuals) sometimes find it necessary to reorganize their debt load in order to emerge as a more viable and profitable entity. In the United States, federal bankruptcy law -- Title 11, Chapter 11 governs this restructuring process.

Businesses eligible for reorganization under Chapter 11 include:
  • Corporations. Under U.S. law, a corporation exists separate and apart from its owners. As a result, other than the value of their investment in the company’s stock, the personal assets of the owners and/or stockholders are not put at risk.
  • Partnerships. In general, personal assets of the partners are not at risk. However, in some cases, personal assets may be used to pay creditors, or the partners themselves may be required to file for bankruptcy protection.
  • Sole proprietorships. Sole proprietors do not have an identity separate and distinct from the owner. Therefore, bankruptcy involving a sole proprietorship includes both the business and personal assets of the owner-debtor.