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Distressed Debt

Chapter 11  Bankruptcy is  generally a reorganization of a company’s financial affairs and is  commenced when a company files a petition with the U.S.  Bankruptcy Court. After the petition has been filed, the company,  now referred to as the debtor, usually operates as a debtor-in-possession  where it continues to control and administer its own business  affairs.  

The  bankruptcy code protects the debtor with an automatic stay against  creditor actions, meaning that creditors owed money at the time the  petition is filed are, under most circumstances, denied the right to  enforce payment until the debtor has emerged from  bankruptcy. This automatic stay is designed to allow the debtor to  restructure and formulate a plan of reorganization. 

A plan of reorganization outlines how the debtor  intends to restructure its business, pay its debts, and emerge from  bankruptcy. A plan of reorganization does not have to  provide for the full payment of all pre-petition bankruptcy debts.

Some companies emerge from bankruptcy relatively  quickly, while others remain in bankruptcy for a longer period of time depending on  the complexity of the case. Information regarding a particular  bankruptcy case can be obtained from the debtor, its counsel, the  unsecured creditors’ committee, or the U.S. Bankruptcy Court.