Advantages of Chapter 11


Companies that are facing seemingly insurmountable financial difficulties can often turn to chapter 11 for relief. Some of the key advantages of filing chapter 11 to successfully resolve a company’s financial woes are:

*Automatic Stay: The filing of a chapter 11 petition will, by operation of law, prohibit creditors from taking or continuing with any and all collection actions.

*Freezes Pre-Petition Debt: Upon the filing of a chapter 11 petition, the debtor is prohibited by law from making payments on its pre-petition debt, thus providing an immediate benefit to the cash flow of the business.

*Restructuring of Secured Debt: Under chapter 11, secured debt may be restructured by lowering the interest rate on the obligation, extending its maturity, or both. In certain circumstances, the amount of secured debt can be written down to the value of the creditor’s collateral.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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