How is Chapter 11 bankruptcy best described?

Chapter 11 bankruptcy, often referred to as a "workout" or reorganization plan, is designed primarily for businesses but can also apply to individuals with substantial debts. This form of bankruptcy allows the debtor to propose a plan to keep its business alive while paying creditors over time. The court oversees this process to ensure fair treatment and compliance with bankruptcy laws.

In contrast to other types of bankruptcy, such as Chapter 7, which involves liquidation of assets where the business ceases operations and assets are sold to pay debts, or Chapter 13, which is specifically intended for wage earners seeking to reorganize their debts while repaying them over a set period, Chapter 11 focuses on restructuring. It permits the debtor to continue operating while negotiating terms with creditors for payment plans that could include reductions, extensions, or alterations of existing debts. This approach aims to restore the viability of the business rather than just settling debts through asset liquidation.

Thus, the essence of Chapter 11 lies in its flexibility to adapt to the financial challenges faced by a business and its ability to rearrange obligations to enable ongoing operations, ultimately aiming for a turnaround and financial stability.