A Chapter 11 Bankruptcy, otherwise known as a reorganization bankruptcy, allows the petitioner (also known as the “debtor”) to continue operations while reorganizing their debts over a period of time. There are many routes that a Chapter 11 bankruptcy can take to resolve the debtor’s obligations. This blog post provides an overview of what a Chapter 11 bankruptcy filing may entail.
Although this type of bankruptcy is typically not available to individuals (or “consumers”), a Chapter 11 filing can resemble other consumer bankruptcies. Like a Chapter 7 or 13, the beginning steps are the same: a petition is filed with the bankruptcy court, a case number is assigned, the automatic stay of other court proceedings begins, and a meeting of creditors is scheduled. Unlike a Chapter 7 or 13 bankruptcy, however, a Chapter 11 bankruptcy has additional filing requirements. The bankruptcy may operate as a reorganization (like a Chapter 13 filing) or a liquidation (like a Chapter 7 filing), depending on the Chapter 11 petitioner’s circumstances. Unlike some other types of bankruptcy, Chapter 11 bankruptcies can be voluntarily filed by debtors or involuntarily filed by creditors. 11 U.S.C. §§ 301, 303.
The Chapter 11 reorganization plan outlines how the petitioner will satisfy debts moving forward. This gives the debtor an option to restructure repayment terms. This plan essentially outlines which creditors will be paid and the order in which they are paid. The debtor has a 120-day window of exclusivity to file the reorganization plan, which timeline can be judicially adjusted but cannot exceed 18 months. See 11 U.S.C. § 1121(b); See also 11 U.S.C. § 1121(d). After this window has passed, a creditor (or case trustee) may file a reorganization plan. For a small business debtor, there is a 180-day period of exclusivity.
The plan must include a disclosure statement, which provides information about the petitioner’s business affairs so creditors can make judgments about the reorganization plan. For a small business, the court may determine that the plan provides sufficient information, and that a disclosure statement is unnecessary. Creditors then file proofs of claim to state how much they are owed. Once the claims are determined to be valid, or not, the creditors of the valid claims will vote on the plan confirmation. The court will then hold a confirmation hearing to determine if the plan should be approved. Once the plan is approved, the case can be closed until the completion of the plan where it can then be re-opened.
Once the plan is completed, any pre-petition debt is discharged. See 11 U.S.C. § 1141(d)(1). This does not apply to debts that are considered non-dischargeable under section 523. See generally 11 U.S.C. §523. A discharge is only available to a debtor once all payments have been made under the plan. 11 U.S.C. § 1141(d)(5). The confirmation of a plan does not apply to a liquidation Chapter 11 bankruptcy.
Chapter 11 Bankruptcies are quite complicated and can take many forms for debtors. Before filing a Chapter 11 bankruptcy, a debtor should consult a bankruptcy attorney. If you are considering bankruptcy, contact the Indiana bankruptcy attorneys at McNeelyLaw to discuss your options.
This McNeely Law LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.