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Looking at the basics of Chapter 11 bankruptcy, P.1

In our last post, we mentioned the recent bankruptcy filing associated with paper mills in both Wisconsin Rapids and Stevens Point, and began speaking about some of the general characteristics of Chapter 11 bankruptcy. As we noted, Chapter 11 is most often used in connection with corporations and partnerships.

In both Chapter 7 and Chapter 13 filings, a bankruptcy trustee is appointed to take charge of the administration of the bankruptcy estate. Trustees are appointed only in a small number of Chapter 11 cases, typically only under unusual circumstances, such as when there has been a finding of fraud, incompetence, dishonesty, gross mismanagement or some other unusual circumstance. Usually, the debtor is recognized as a “debtor in possession” who operates the business and fulfills the duties that would ordinarily be carried out by a trustee. 

In Chapter 11 cases, the trustee has the duty of monitoring the process of a bankruptcy case and supervising its administration. This includes watching over the operation of the business, submission of operating reports and fees, and other court filings. The debtor in possession is required to comply with all reporting requirements to the trustee and orders of the bankruptcy court.

Typically, a creditors’ committee is appointed in Chapter 11 cases to serve an advisory role in the management of the business. In cases where creditors cannot be found to serve on such a committee, a debtor will have to submit to additional oversight by the bankruptcy trustee.

Chapter 11 cases are different than Chapter 7 and Chapter 13 cases in that their duration can vary widely. Cases can go on for many years when the various parties involved are not careful to ensure the efficient resolution of a case. In our next post, we’ll look a bit more at the basics of Chapter 11 bankruptcy and how an experienced attorney can help a debtor to navigate the process. 

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