Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Chapter 11”
Chapter 11 is a bankruptcy filing with the SEC which is undertaken by any company which
cannot pay its creditors and is therefore bankrupt. The Chapter 11 filing provides bankruptcy
protection to the company and allows it to restructure itself and its assets to maximize
creditor and shareholder value before the company is closed.
When a company files for Chapter 11, its shares are delisted from any exchange it is currently
listed on and cannot be traded. Once all assets have been liquidated, creditors are paid off
and if they are paid in full, the rest of the value is split amongst shareholders.
One of the most infamous Chapter 11 filings in history is that of Lehman Brothers in 2008
as a result of the financial crisis. A chapter 11 case begins with the filing of
a petition with the bankruptcy court serving the area where the debtor has a domicile or
residence. A petition may be a voluntary petition, which is filed by the debtor, or it may be
an involuntary petition, which is filed by creditors that meet certain requirements.
A voluntary petition must adhere to the format of Form 1 of the Official Forms prescribed
by the Judicial Conference of the United States. Unless the court orders otherwise, the debtor
also must file with the court.