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Read this Chapter 11 Legal Implications Before Filing

Chapter 11 Legal Implications

Granted, some decisions to "file Chapter 11," as it might be said, come after a period of serious mismanagement of companies, and accordingly, it may be unclear to some why they should be afforded Chapter 11 bankruptcy protection at all. Though not an implication of wrongdoing per sé, a debtor may file Chapter 11 only to find that their petition gets dismissed sometime later, and often because of their inability to act in a timely manner.

One of the numerous benefits afforded to applicant parties under Chapter 11 bankruptcy protection is that of the exclusive right to be the first to formulate a reorganization plan. Under most circumstances, those who file Chapter 11 will have 120 days to draft a viable plan and another 180 days to sell creditors on the ideas within. If this allotted time is not made use of, creditors and other interested parties may submit competing plans to the court for consideration.

Along similar lines, Chapter 11 bankruptcy protection can become null and void, so to speak, for a particular petition in the event of administrative delay or error. Notably, the refusal or neglect to file certain documents, including taxes, disclosure statements, and the reorganization plan itself, in filing for Chapter 11 bankruptcy can cause an appeal to be rejected. Plus, as with other types of bankruptcy, to successfully file Chapter 11 is to file a petition that is made in "good faith" or with good cause.

If a plan in effect is not in the best interests of an estate, creditors and/or shareholders, the petition for relief may be refused outright. With Chapter 11 bankruptcy protection too, confirmation may not necessarily be the end of all bankruptcy court proceedings.

NEXT: Short Guide to Chapter 11 Filing Process

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