Chapter 11 bankruptcy is typically used to reorganize a business as a going concern under court protection.Upon filing, the debtor in Chapter 11 automatically becomes a “debtor in possession.” As a debtor in possession, the business is authorized to operate without the appointment of a trustee until a plan of reorganization is confirmed, the case is dismissed or converted to a Chapter 7 bankruptcy, or a Chapter 11 trustee is appointed (which is rare).It is necessary for a corporation or partnership undergoing reorganization to be able to present its creditors with a fixed list of liabilities upon which the creditors or third parties can make intelligent decisions.
A Chapter 7 bankruptcy is intended to quickly eliminate all dischargeable debt, and allow individuals to begin rebuilding their finances as quickly as possible. A minority of courts have upheld the preclusive effect of a confirmation order as binding on creditors even if they did not receive notice of the bankruptcy or confirmation process. on the ground that the plan is violative of section 524 and not within the power, even jurisdiction of the bankruptcy court .... Upon confirmation, all property of the bankruptcy estate is vested in the debtor unless otherwise provided in a Chapter 11 plan, or in the order confirming the plan. On the other hand, if a party is not listed on the debtor's bankruptcy schedules and/or did not receive notice of the confirmation hearing, most courts would find that the party is not be bound by the terms of the confirmed plan. But where a party does not have a pre-petition or administrative claim against the debtor, courts have found that such parties are not "creditors" and therefore are not bound by the plan. , 67 F.3d 779, 785 (9th Cir.1995)("creditors who do not wish to release third party debtors pursuant to the principal debtor's plan of reorganization should object to confirmation ... In such cases, the third party releases may not be enforceable against that creditor. And while most Chapter 11 filings don't include liquidation of the business's assets, it may be permitted in some cases. Liquidation Availability For the most part, small business owners choose Chapter 11 over Chapter 7 specifically to avoid asset liquidation.While Chapter 7 filings normally entail a complete shutdown of the business and a selloff of all assets in order to repay the debt, the goal of Chapter 11 is to maintain business operations and repay the debt over time.Chapter 13 can also be filed when individuals have too much disposable income under the Means Test under Chapter 7.