Debtors are also protected from other litigation against the business through the imposition of an automatic stay.While the automatic stay is in place, creditors are stayed from any collection attempts or activities against the debtor in possession, and most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.Chapter 11 usually results in reorganization of the debtor's business or personal assets and debts, but can also be used as a mechanism for liquidation.
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Upon its confirmation, the plan becomes binding and identifies the treatment of debts and operations of the business for the duration of the plan.
If a plan cannot be confirmed, the court may either convert the case to a liquidation under chapter 7, or, if in the best interests of the creditors and the estate, the case may be dismissed resulting in a return to the status quo before bankruptcy.
In the event of a rejection, the remaining parties to the contract become unsecured creditors of the debtor.
For example, in some districts a contract for deed is an executory contract, while in others it is not.
Such contracts may include labor union contracts, supply or operating contracts (with both vendors and customers), and real estate leases.
The standard feature of executory contracts is that each party to the contract has duties remaining under the contract.In contrast, Chapter 7 governs the process of a liquidation bankruptcy (although liquidation can go under this chapter), while Chapter 13 provides a reorganization process for the majority of private individuals.When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11. § 1108 empowers the trustee to operate the debtor's business.In Chapter 11, in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business's earnings.Chapter 11 retains many of the features present in all, or most, bankruptcy proceedings in the U. The court may also permit the debtor in possession to reject and cancel contracts.The Bankruptcy Code accomplishes this objective through the use of a bankruptcy plan.