IS YOUR BUSINESS ABOUT TO GO BANKRUPT?

Under the law, the debtor has the right to file a reorganization plan for the first 120 days after filing.  It must provide creditors with a disclosure statement containing enough information about the debtor’s financial circumstances to evaluate the plan.  Corporations filing chapter 11 bankruptcy exist separately from their stockholders, whose assets are not at risk. 

Creditors holding similar types of claims are placed into the same class.  Creditors whose claims are impaired may vote on the plan.  A class is impaired when its legal rights are altered by a chapter 11 plan.  For it to be confirmed by the court, the creditors voting must approve the plan by a majority in number and by a 2/3 majority in dollar amount of claims.  Under the law, at least one impaired class must approve the plan. If a class votes against the plan, it may still be approved if found "fair and equitable" and doesn’t discriminate.  The court ultimately approves or disapproves the plan. 

The debtor may act as his own trustee, a "debtor in possession", and remain in possession of all estate property.  Often, a debtor filing chapter 11 bankruptcy has many creditors making it difficult to contact and negotiate with numerous creditors.  The law allows the United States Trustee to appoint creditor committees generally comprised of the debtor's seven largest unsecured creditors. The committees negotiate on behalf of the debtor-in-possession, provide input, and monitor the debtor's progress.

A plan often calls for the debtor to remain in business, and to repay creditors from future earnings, borrowings, or an asset sale. Under Chapter 11 bankruptcy law, priority claims, including recent tax claims, must be paid in full, plus interest.  Secured claims must be paid in full, with interest. Unsecured non-priority claims must be paid a dividend at least equal to that what they would’ve received under a Chapter 7 case. 

Under the confirmed plan, the debtor reduces debts, repaying a portion of obligations and discharging others. Chapter 11 bankruptcy law allows a debtor to terminate burdensome contracts and leases, recover assets, and rescale operations to return to profitability.  One month after filing, the debtor and his attorney attend a meeting of creditors.  The debtor files monthly reports, showing income and disbursements, profit and loss, and a balance sheet, and pays quarterly fees to the Trustee based on the amount of money disbursed. 

To find more chapter 11 bankruptcy information contact a corporate attorney specializing in it or research the law online.