Debtor in Possession
Financial Distress Costs
Reorganization is when a bankrupt company restructures its debt obligations without going out of business. During reorganization, the debtor retains ownership of its assets and continues business operations. The debtor then renegotiates the terms of its debt obligations to creditors. If a company is having financial trouble and is at risk of defaulting on loan payments, that company may want to consider reorganization to consolidate debts and adjust loan agreements to make payments more manageable.
Reorganization vs Liquidation
Reorganization vs liquidation are two types of bankruptcy processes. In a reorganization, the debtor retains ownership of its assets and continues business operations while renegotiating debt repayments with creditors.
In a liquidation, the creditors seize control of the debtors assets and sell them to pay off the debt. Furthermore, the debtor goes out of business and ceases normal operations. After liquidation, the entity technically no longer exists.
Chapter 11 Reorganization
Chapter 11 bankruptcy is a type of bankruptcy proceeding outlined in the Bankruptcy Code. It is also a reorganization procedure.
When a financially distressed entity files for chapter 11 bankruptcy, the entity continues to operate while it restructures its debt obligations. The entity is given a limited amount of time in which to restructure the debts. During this time the entity is protected from creditors.
Reorganization bankruptcies are usually more complex than liquidation bankruptcies. Companies usually file for Chapter 11 bankruptcy.
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