In a nutshell, and vastly oversimplified, Declaring Chapter 11 is for businesses!While an individual might consider chapter 7 bankruptcy as a solution to their money woes, small business owners have other things to consider. Business owners, in a way, have alot more to lose than an individual, considering their loses affect not just themselves, but also their employees, their employees families, their clients, their partners and stock and bond holders (in the case of larger companies). While declaring chapter 7 is a tough decision for an individual, declaring chapter 7 for a company literally (in some cases) causes owners to jump out of windows. This is where declaring chapter 11 comes into play. Declaring chapter 11, as we will see below is an alternative to chapter 7. But like Chapter 7 Declaring chapter 11 should be entered into very carefully and you should NOT do it all on your own!
That's where declaring Chapter 11 Bankruptcy comes in. If Chapter 7 is the "Yes Definitly" Decalring Chapter 11 is the "Well, Maybe" of the Bankrupcy world. Chapter 11 Bankrutcy is a provision in the bankruptcy code that allows a company to file for bankruptcy but still maintain partial control over their company. Declaring Chapter 11 in some ways is a (semi) self imposed probationary period where the governing body of the company - the board of directors, owners etc - maintains control of the daily functioning of the company but must allow all major decisions to pass through the bankruptcy court. This is of course a last ditch, hail-marry pass, weapon of last resort thing for any company - a period where the company can reorganize itself and try to become profitable. In declaring Chapter 11, boards of companies are, in a way admitting that there is a serious problem with the management of the company. Stocks often are still traded, often with an asterisk (The trading of stock of a company which is declaring chapter 11 is a little out of the scope of this article buyt there are links to this information on this page if you are interested) but stock prices often take a huge hit for companies who are declaring chapter 11. But Declaring Chapter 11 isn't the end of the world for a company as we will see in a moment.
...doesn't mean the end of the the world or even your company! Many businesses are able to bounce back from serious debt, mismanagement and from declaring Chapter 11. If your company or small business is in trouble financially and you are avoiding declaring chapter 11 bankruptcy based only on the stigma of the name, reconsider your position. In fact declaring Chapter 11 might be exactly what turns your company around. That is, if it is done correctly and at the right time. Likewise, if you are a holder of stock in a company that is declaring chapter 11, don't go dumping all your stock just yet. A rash decision may cost you quite a bit of money. Get yourself on a conference call with the company and find out what is going on. If the company is declaring Chapter 11, they are sure to explain their reasoning to the stockholders.
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