Chapter 11 bankruptcy is a financial reorganization procedure used by individuals, corporations and partnerships. A debtor who is filing for Chapter 11 must submit a list of assets and liabilities and a detailed list of his financial affairs. The specifics of this filing vary from state to state.
In Texas, a petition to file Chapter 11 bankruptcy begins with a voluntary petition form. This form is available in legal stationery stores or online. The debtor begins by filling in her individual or business name, place of operation, location of principal assets, her debtor's plan and a request for relief. By filing Chapter 11, she automatically becomes a debtor in possession, which means she controls her assets but still owes money. A judge will decide whether to appoint a trustee. Generally, trustees are not appointed in Chapter 11 cases.
Filing a petition stops all listed creditors from trying to collect money a debtor owes them. The court notifies creditors of the filing. A stay of collections becomes effective at the time of the filing, even though the creditors will not be notified until afterward. After the creditors have been notified, they must cease all lawsuits, garnishment actions and telephone calls against the debtor. Sometimes when a debtor has property that is owned by a creditor, and it does not pertain to the reorganization, the creditor may have access to the property.
The debtor must file a written statement, including a plan for reorganization, with the court. For 120 days after the filing, the debtor has exclusive rights to the plan. Because Chapter 11 cases can drag on for years, a creditor has a right to file its own plan for the reorganization of a company. This plan must list outstanding claims and detail how each of these claims will be treated. The claim must also show how the company would earn more money if it were allowed to keep its assets than if its assets were liquidated. In order for it to be approved by creditors, each class of creditors must approve the plan with majority vote. If plan is not approved, the company must be liquidated.