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Under Chapter 11, the debtor usually proposes a plan of reorganization to stay in business while a bankruptcy court oversees the reorganization of the company's contractual and debt obligations. The court may grant complete or partial relief from most of the company's debts and contracts, allowing the company to start anew.
Debtors in Chapter 11 have the exclusive right to propose a plan of corporate reorganization for a period of time. When the time has elapsed, creditors also may propose plans. The proposed plans of either debtors or creditors must satisfy a number of criteria in order to be confirmed by the bankruptcy court. Among other things, creditors must vote to approve the plan of reorganization.
How does Chapter 11 bankrutpcy filing work?
The U.S. Trustee, the bankruptcy arm of the Justice Department, will appoint one or more committees to represent the interests of creditors and stockholders in working with the company to develop a plan of reorganization to get out of debt.
The plan must be accepted by the creditors, bondholders, and stockholders, and confirmed by the court.
If the court does not confirm the reorganization plan, the following may occur:
The court may convert the case to a liquidation under Chapter 7, and the creditors are paid from the liquidation proceeds in accordance with statutory priorities.
If it is in the best interests of the creditors and the business, the case may be dismissed, resulting in a return to the status quo prior to filing for bankruptcy.
If the company reverts to the status quo, creditors resort to non-bankruptcy law to satisfy their debt claims.
BUSINESS BANKRUPTCY - Chapter 7 and Chapter 11 Bankruptcy
CHAPTER 11 BANKRUPTCY
