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Chapter 11 and creditors' committees

When a business files for Chapter 11 reorganization, a number of parties may become involved in the process. Depending on the nature of the debts motivating the business to reorganize, the procedure may call for forming a creditors' committee. While each creditors' committee may operate differently or pursue different goals, many of the general principles of creditors' committees apply in most instances.

A creditors' committee includes a number of creditors who hold the largest claims to the debtor in possession's assets. In most cases, the committee involves about seven creditors. These parties consult with the debtor and examine his or her finances to determine fair terms for the reorganization. The committee may also examine the conduct of the debtor and review the business practices of the debtor to reach a well rounded understanding of the circumstances that call for Chapter 11 reorganization.

Creditors's committees may persist throughout the entire course of the bankruptcy, helping to safeguard against improper business decisions by the debtor. In some cases, the committee may even hire an attorney or other positions to assist with the duties of the committee, assuming that a court approves.

If you are considering a Chapter 11 reorganization, then you must take time to understand exactly how the process works and how to navigate it effectively. You can consult with an established bankruptcy attorney to ensure that you are fully prepared for the process and understand the risks and likely outcomes. Do not hesitate to reach out for guidance as you take this important step toward regaining your financial footing and starting with a fresh slate in a new season.

Source: US Courts, "Chapter 11 - Bankruptcy Basics," accessed Dec. 22, 2017

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