Question

what is the difference between a chapter 7 and chapter 11 bankrupcy action? what financial statement must a company file during chapter 11 reorganization?

Answer 1

The primary difference between chapter 7 and chapter 11 bankruptcies is that chapter 7 is a liquidation bankruptcy while chapter 11 is a reorganization bankruptcy. In case of chapter 7 bankruptcy you will be selling your assets to pay as many creditors as possible. On the other hand in case of chapter 11 bankruptcy you will negotiate with your creditors in order to modify the terms of your debts and hence you will be able to create a repayment plan without having to sell your assets. Usually chapter 7 is favored and used by individuals while chapter 11 is geared more towards corporate entities and other types of businesses.

The financial statement that a company must file during chapter 11 reorganization are - a schedule of current income and expenditures, assets and liabilities, executory contracts, and unexpired leases, as well as a statement of financial affairs. A disclosure statement and a plan of reorganization must also be filed with the court. The disclosure statement contains details about the debtor’s assets, liabilities, and business affairs, sufficient enough to allow the court to make an informed decision about the plan of reorganization. Disclosure statement is the primary financial statement that must be filed during chapter 11 reorganization.