What is a prepackaged Chapter 11?

Answer 1

Chapter 11 protection allows companies to restructure under court supervision while continuing to operate. Companies that file under chapter 11 utilize the flexibility provided by the process and the protections afforded by the Bankruptcy Code in order to implement financial and operational restructurings, often emerging with right-sized balance sheets and/or refocused operations. In contrast, companies that file under chapter 7 cease to operate and liquidate their business for the benefit of their creditors.

In a "pre-packaged" restructuring, prior to filing for chapter 11, the company reaches a reorganization agreement with its creditors and then formally solicits their support before entering court. One of the primary benefits of a pre-packaged restructuring is it generally results in a shorter turnaround time for the company and significantly higher rates of success.

Chapter 11 (business reorganization) is a type of reorganization bankruptcy, like Chapter 13. Chapter 11 is available to individuals, corporations, and partnerships. It has no limits on the amount of debt, again, like Chapter 13. Chapter 11 is the typical bankruptcy choice for large businesses seeking to restructure their debt and become profitable again. Chapter 11 is the most flexible of all the bankruptcy chapters, which makes it generally more expensive to the debtor.

A company's stock may continue to trade even after they file for bankruptcy.