This blog recently discussed a national toy retailer that filed for Chapter 11 bankruptcy protection. In general, there are two primary types of bankruptcy protection for both businesses and consumers struggling with debt. The two types of bankruptcy can be broadly understood as reorganization bankruptcy and liquidation bankruptcy. Chapter 11 reorganization bankruptcy is a bankruptcy protection option for businesses with heavy debt burdens that is designed to help them reorganize their debts.
Chapter 11 bankruptcy is intended to help the struggling company stay in business and return to profitability. Business reorganization allows a struggling company to develop a reorganization plan that may reduce their costs and seek additional sources of funding. At the same time, filing a petition for bankruptcy protection initiates an automatic stay during which time creditors cannot pursue collection actions.