Chapter 11 Bankruptcy Reorganization

As a business owner, when you file for business bankruptcy protection under Chapter 11, you have up to 120 days to submit a plan of reorganization to the bankruptcy court. Typically this plan would include details on how you intend to restructure the corporate debt, which may involve repayment extensions, adjustments to interest rates, or debt relief.

Once a plan is developed and proposed, it must be approved by a majority of the creditors and confirmed by the bankruptcy court.  At least one class of “impaired” creditors, those who are taking less than they are owed or whose legal rights are changed by the plan, must accept the proposed restructuring plan.  The bankruptcy court will also determine the feasibility of any proposed reorganization plan.

After the 120-day period passes, any interested party may file a competing reorganization plan with the court. Such plans often include provisions for the liquidation of some of the debtor’s nonexempt assets and may also be considered and approved by the court.  These interested parties may include creditors or stockholders, and if a trustee is appointed, the trustee may also file a bankruptcy plan. Such plans often include provisions for the liquidation of some of the debtor’s nonexempt assets and may also be considered and approved by the court.

The bankruptcy trustee has the ability organize the interested parties who do not fall into a category of secured creditors into an “official committee of unsecured creditors.” The trustee may also create committees for secured creditors, holders of liens, or even for employees of the business.  While any of these interested parties may file a competing reorganization plan, there is no guarantee their plan will be confirmed by the court. If the reorganization plan you propose is developed with the expertise of a business bankruptcy attorney, your odds of a successful confirmation increase dramatically. There are many key points and numbers that figure prominently in any bankruptcy reorganization plan, so consulting a qualified business bankruptcy lawyer is a sound business decision.

What if The Reorganization Plan is Rejected?

In some business bankruptcy cases, one or more classes of creditors will reject the reorganization plan.  There are many reasons why a creditor may object to the proposed plan including:

• Arguing that the debtor does not meet the technical requirements of a Chapter 11 filing
• Challenging the valuations made by the debtor in the proposed plan
• Lack of detailed financial projections to determine the success of the plan

If you cannot come to an agreement with the creditors who object to the plan, you may seek relief under the cram down provisions of the bankruptcy code. This scenario allows a plan previously rejected by one or more creditors to be approved by the bankruptcy court as long as it is deemed to be fair, equitable and not discriminatory against any class of creditors.

Confirmation and Completion of a Los Angeles Chapter 11 Bankruptcy Case

Once the reorganization plan is confirmed, you will be discharged from all debts filed in the plan. Following confirmation of the plan, the debtor’s property is free and clear of liens and encumbrances unless they were preserved in the plan documents.  The terms of the confirmed reorganization plan, including any repayment conditions, must be adhered to by both the debtor and the creditors.

The Chapter 11 bankruptcy process is complicated and best navigated with the help of a seasoned Los Angeles business bankruptcy lawyer.  Call our Los Angeles bankruptcy office today for a free consultation.