Chapter 11 bankruptcy, known as “reorganization bankruptcy,” is a process aimed at preserving a debtor’s business value. It unfolds in five stages, with Part I focusing on prepetition planning and the initial filing. These stages lay the groundwork for the proceedings and influence the debtor’s ability to reorganize effectively.
Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” involves the systematic liquidation of a business debtor’s assets by a bankruptcy trustee, with the proceeds distributed to creditors. This process signifies the end of the business partner for creditors, although occasionally, the trustee may operate the business briefly to sell assets as a going concern. While Chapter 7 shares similarities with Chapter 11, such as the automatic stay and claim filing deadlines, it presents unique challenges and opportunities for creditors.