Chapter 11 of the United States Bankruptcy Code (commonly referred to as, the "Bankruptcy Code") is the chapter under which businesses are able to reorganize and refinance in order to prevent liquidation. A Chapter 11 case is commenced by the filing of a petition for relief with a United States Bankruptcy Court, after which, the company is referred to as the "debtor." In most cases, a "voluntary" petition is filed by the debtor. Occasionally, however, three or more creditors may commence the case by filing an "involuntary petition." In a chapter 11 case, the debtor automatically assumes an additional identity as the "debtor in possession." The term refers to a debtor that keeps possession and control of its assets while undergoing a reorganization under Chapter 11, without the appointment of a trustee. Chapter 11 was created by Congress to give companies the "breathing room" to stabilize their operations while keeping creditors at bay.
The end result of a "successful" Chapter 11 could be an internal reorganization (in which claimants receive cash and/or new debt or equity securities of the reorganized entity) or a sale of all or part of the business. Not all companies are able to reorganize, however, and some are forced to liquidate their assets. Liquidations are accomplished either through the filing of a Liquidation Plan under Chapter 11 or the case may be converted into a case under Chapter 7, in which case a Chapter 7 Trustee will be appointed to liquidate the company.