Chapter 11 of the bankruptcy code is entitled “Reorganization” and is generally used by a commercial enterprise to reorganize its affairs as an alternative to a liquidation, as businesses generally do not continue to operate upon the filing of a chapter 7 (chapter 13 may be a less expensive alternative if the commercial enterprise is a sole proprietorship).
An individual that exceeds the debt limits of chapter 13 may seek to reorganize his or her affairs under chapter 11.
Chapter 11 is designed for businesses or individuals with complicated financial affairs and is generally more expensive than the other types of bankruptcy. In chapter 11 a business (or individual) seeks to reorganize its affairs through a court approved plan of reorganization. There is considerable latitude in fashioning the terms of the chapter 11 plan of reorganization through negotiations with creditors, bondholders, and shareholders. The debtor generally has the exclusive right to file a plan for the first 120 days following the filing of the case. Chapter 11 is an especially powerful mechanism for rescaling business operations, shedding burdensome contracts and leases, reducing some debts and eliminating others in an effort to return to profitability.