Chapter 11, Title 11, United States Code

In Chapter 7, the business ceases operations, a trustee sells all of its assets, and then distributes the proceeds to its creditors.

Determinations as to which debts are discharged, and how equity and other entitlements are distributed to various groups of investors, are often based on a valuation of the reorganized business.

A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business's earnings.

[16] The court is ultimately responsible for determining whether the proposed plan of reorganization complies with bankruptcy laws.

If at least one class of creditors objects and votes against the plan, it may nonetheless be confirmed if the requirements of cramdown are met.

Simply put, the plan is a compromise between the major stakeholders in the case, including, but not limited to the debtor and its creditors.

[24] Most importantly, the bankruptcy court must find the plan (a) complies with applicable law, and (b) has been proposed in good faith.

[31] Section 362(d) of the Bankruptcy Code allows the court to terminate, annul, or modify the continuation of the automatic stay as may be necessary or appropriate to balance the competing interests of the debtor, its estate, creditors, and other parties in interest and grants the bankruptcy court considerable flexibility to tailor relief to the exigencies of the circumstances.

Relief from the automatic stay is generally sought by motion and, if opposed, is treated as a contested matter under Bankruptcy Rule 9014.

[33] In the space of 2 years (2002–2004) US Airways filed for bankruptcy twice[34] leaving the AFL–CIO,[35] pilot unions and other airline employees claiming the rules of Chapter 11 have helped turn the United States into a corporatocracy.

[36] The trustee or debtor-in-possession is given the right, under § 365 of the Bankruptcy Code, subject to court approval, to assume or reject executory contracts and unexpired leases.

The trustee or debtor-in-possession normally assumes a contract or lease if it is needed to operate the reorganized business or if it can be assigned or sold at a profit.

§ 1110) generally provides a secured party with an interest in an aircraft the ability to take possession of the equipment within 60 days after a bankruptcy filing unless the airline cures all defaults.

More specifically, the right of the lender to take possession of the secured equipment is not hampered by the automatic stay provisions of the Bankruptcy Code.

In August 2019, the Small Business Reorganization Act of 2019 ("SBRA") added Subchapter V to Chapter 11 of the Bankruptcy Code.

Subchapter V retains many of the advantages of a traditional Chapter 11 case without the unnecessary procedural burdens and costs.

It also eliminates automatic appointment of an official committee of unsecured creditors and abolishes quarterly fees usually paid to the U.S.

The reorganization and court process may take an inordinate amount of time, limiting the chances of a successful outcome and sufficient debtor-in-possession financing may be unavailable during an economic recession.

A preplanned, pre-agreed approach between the debtor and its creditors (sometimes called a pre-packaged bankruptcy) may facilitate the desired result.

[38] These airlines were able to stop making debt payments, break their previously agreed upon labor union contracts, freeing up cash to expand routes or weather a price war against competitors — all with the bankruptcy court's approval.

Cases involving more than US$50 million in assets are almost always handled in federal bankruptcy court, and not in bankruptcy-like state proceeding.

[citation needed] The largest bankruptcy in history was of the US investment bank Lehman Brothers Holdings Inc., which listed $639 billion in assets as of its Chapter 11 filing in 2008.

The 16 largest corporate bankruptcies as of December 13, 2011[41] Enron, Lehman Brothers, MF Global and Refco have all ceased operations while others were acquired by other buyers or emerged as a new company with a similar name.