Chapter 11
Definition
Chapter 11 is the reorganization chapter of the US Bankruptcy Code: a company keeps operating as a "debtor in possession" while it restructures its balance sheet under court protection. Filing triggers the automatic stay, which halts creditor collection, lawsuits, and enforcement, giving the company breathing room.
The end goal is a confirmed plan of reorganization that restructures claims — typically converting debt to equity, extending maturities, or repaying with new money — approved by creditor classes (acceptance requires two-thirds in amount and more than half in number of voting claims in a class) and the court. Plans can be "crammed down" on dissenting classes if statutory requirements, including absolute priority, are met.
Common variants: prepackaged (votes solicited before filing; can move very fast), pre-negotiated (RSA signed with key creditors before filing), and free-fall cases. Alternatives include out-of-court exchanges and, for a sale of the business rather than a standalone reorg, a 363 sale process. Chapter 7, by contrast, is liquidation by a trustee.
Why interviewers ask
Any restructuring interview requires fluency in Chapter 11 basics — automatic stay, DIP financing, plan confirmation, prepacks. Even generalist banking interviews may ask the difference between Chapter 11 and Chapter 7, or what happens to shareholders in bankruptcy (usually wiped out or heavily diluted).
Related terms
Interviews don't test definitions — they test recall under pressure.
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