When businesses and individuals fall behind in paying their creditors those creditors can become edgy. When debtors become unable to honor their financial obligations for a period, the creditors may decide to ask the court to declare the business or person bankrupt. In this way creditors can receive at least a portion of their money back. Bankruptcy can be approached in different ways. When applying for chapter 11 reorganization NJ businesses may get a chance to recover and to continue trading.
Individuals and all the different types of smaller businesses can apply for bankruptcy relief in terms of this section, but it is mostly large corporates that use it. It is much different from a section seven application, where the court appoints a trustee that takes control of the business. In most cases trading is halted and the assets of the applicant are sold to service his debt.
In the case of a section eleven application, the business continues to trade. This is done in cases where there is a chance that the applicant will recover and become able to honor its debts and obligations. The court does not appoint a trustee and the debtor remains in control of the business. However, the court oversees the management of the business and the applicant has to adhere to strict oversight rules.
This section of the bankruptcy code allows enterprises to restructure their businesses back to profitability and a position where they can honor their commitments. Applicants are allowed to apply for finance, under certain conditions, and they are even allowed to make new agreements with both suppliers and customers. In certain cases they are allowed to cancel previous agreements if those agreements hinder in making them viable again.
Applicants also have other benefits from applying for this type of protection. Creditors are not allowed to proceed with legal issues and it is not allowed to make any attempts at collections against any corporate protected by this law. This is because they have automatic stay against creditors. However, creditors may still appeal to the courts to be paid, especially if they will become vulnerable themselves if they are not paid.
In terms of this type of bankruptcy the debtor must reorganize his or her assets and debts. The purpose of this is to allow the debtor to return to a situation where he or she can actually honor their obligations. This process may take months or even years. However, the debtor has to present a plan on how exactly he is going to make the business turn around. Creditors have insight in this plan and they may object or agree.
It is only natural that this law has critics. They are of the opinion that the law allows corporates to get away with murder. They cite examples of smaller companies that either suffer or even go under when corporates apply for relief under the bankruptcy laws. Statistics have shown that these allegations are often true. Smaller companies do not have the resources to fight their large clients.
It is not in the interest of the public for a large corporation to go under. There are too many jobs involved and there is too much at stake I general. The law therefore allows these corporations to rescue themselves with aid from the courts.
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