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Chapter 11

Chapter 11 is a type of bankruptcy as designated by the United States bankruptcy code.

Expanded Definition

Chapter 11 is perhaps the best known form of bankruptcy, being the term mentioned perhaps most frequently in the media. Chapter 11 however is only one of many different avenues that a company can take into bankruptcy and is typically only used by large corporations.

In a chapter 11 filing a company is allowed to reorganize and restructure their debts into a form (as overseen by a bankruptcy court) that hopefully will allow the company to continue to operate. This makes a chapter 11 filing an option of first resort for many companies who wish to continue operating.

A bankruptcy court overseeing a chapter 11 filing has the option of forgiving part or all of the afflicted company's debts. As a result critics charge that chapter 11 is often in practice too lenient to debtors and encourages moral hazard. Proponents believe that allowing a company to continue as a going concern actually returns more money to creditors in the long run as well as providing more stability in the overall marketplace.

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