Chapter 11 bankruptcy is the “reorganization” bankruptcy. It is primarily intended for the reorganization of businesses with heavy debt loads (though it is available to individuals as well; see Toibb v. Radloff, 501 U.S. 157 (1991)). These companies are allowed to devise and propose a plan for improved profitability post-bankruptcy. Unlike chapter 7 bankruptcy which liquidates assets and closes the business, chapter 11 bankruptcy allows the business to continue its operation while it recovers from burdensome debt. This type of bankruptcy is commonly associated with large corporations, but often can be a viable strategic option for smaller companies as well.
Similar to a chapter 13 bankruptcy, a chapter 11 bankruptcy involves creating a plan for how the debtor intends to improve its financial situation. In commercial bankruptcy, this plan generally focuses on how the company will increase profitability – usually by reducing expenses, but sometimes by reaching additional revenue sources. This plan is executed under the supervision of the bankruptcy court and the petition may be converted to a chapter 7 liquidation bankruptcy if the court believes the business has little chance to become profitable.