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What Is Chapter 11 Bankruptcy?

Welcome to the Investors Trading Academy talking glossary of financial terms and events. Our word of the day is “Chapter 11” Chapter 11 is a bankruptcy filing with the SEC which is undertaken by any company which cannot pay its creditors and is therefore bankrupt. The Chapter 11 filing provides bankruptcy protection to the company and allows it to restructure itself and its assets to maximize creditor and shareholder value before the company is closed. When a company files for Chapter 11, its shares are delisted from any exchange it is currently listed on and cannot be traded. Once all assets have been liquidated, creditors are paid off and if they are paid in full, the rest of the value is split amongst shareholders. One of the most infamous Chapter 11 filings in history is that of Lehman Brothers in 2008 as a result of the financial crisis. A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements. A voluntary petition must adhere to the format of Form 1 of the Official Forms prescribed by the Judicial Conference of the United States. Unless the court orders otherwise, the debtor also must file with the court. By Barry Norman, Investors Trading Academy - ITA