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Chapter 11 Bankruptcy Reorganization Plan

Reorganization Plan in Chapter 11 Bankruptcy

Are you a business owner struggling with financial problems and lost profits? Chapter 11 bankruptcy may be an option to help you reorganize your debt, keep your doors open, and pay off your creditors over time.

In a Chapter 11 reorganization bankruptcy, debtors can keep their assets while developing a plan to repay their debts and, in some cases, obtain a discharge of certain eligible debts. For this reason, debtors are also referred to as debtors-in-possession.

One of the defining features of Chapter 11 bankruptcy includes the Plan of Reorganization, which sets forth how a debtor will pay down his or her outstanding debts over the term of the plan. Debtors filing for Chapter 11 bankruptcy are required to submit a plan to the court for approval.

To improve the likelihood that your proposed plan is approved, it’s advisable to get the help of an experienced bankruptcy lawyer as soon as possible.

Why Choose Sasser Law Firm?

Sasser Law Firm helps businesses and individuals navigate the process of recovering from financial hardship and working toward a sustainable future. With three board-certified bankruptcy specialists on our team, we bring unique and substantial experience in bankruptcy law to clients throughout North Carolina.

For more than two decades, our attorneys have helped over 7,000 individuals and businesses navigate the bankruptcy process. We handle Chapter 11, Chapter 7, and Chapter 13 petitions for individuals, and small business. Our highly skilled lawyers also respond swiftly to assist clients in emergencies, such as when they’re facing lawsuits or foreclosures.

We take pride in handling the toughest bankruptcy cases and have represented clients fiercely in bankruptcy appeals up to the Fourth Circuit Court of Appeals. Our mission is to help you pursue the best option for resolving your business’s financial affairs. You can count on us to explore alternative options so that you never feel pressured to file for bankruptcy.

Contact Sasser Law Firm or give our firm a call at (919) 319-7400 today for a free consultation.

What Is a Chapter 11 Reorganization Plan?

A Chapter 11 reorganization plan outlines how a debtor proposes to pay off its outstanding debts.

For most businesses who seek Chapter 11 bankruptcy, a reorganization plan will also propose a restructuring of operations to ensure that bankruptcy provides a more permanent solution to the debtor’s financial problems. This may include closing or selling off less profitable subsidiaries, divisions, or lines of business, engaging in layoffs, or making only partial payments on certain eligible debts.

The reorganization plan, if approved by the court, acts as a contract between the debtor and its creditors. If debtors meet their obligations under the plan, they will have paid off or obtained a discharge of its existing debts. If the debtor violates the terms of the plan, it may result in the dismissal of the debtor’s bankruptcy case or an involuntary conversion of the case to a liquidation bankruptcy.

The Bankruptcy Code also allows a Chapter 11 debtor to submit a liquidating plan. This allows the debtor to maintain ownership of assets so that he or she can liquidate the business under more beneficial terms. It enables creditors to have a more active role in the liquidation process than would be possible in a traditional Chapter 7 bankruptcy.

When Do I Submit My Reorganization Plan?

In a Chapter 11 bankruptcy, a debtor has the exclusive right to file a proposed reorganization within the first 120 days following the filing of the Chapter 11 petition. A debtor may seek an extension of this exclusive period from the court, with possible extensions lasting for up to 18 months. Most extensions do not last beyond 300 days.

Occasionally, the debtor will submit a reorganization plan alongside the Chapter 11 bankruptcy petition that begins the case, which is more time efficient.

Once the period of exclusivity expires, creditors may submit their own proposed reorganization plans. If the bankruptcy court finds that a creditor’s plan better meets the statutory requirements for reorganization, the court may approve one of those plans instead of the debtor’s proposal.

What Are the Elements of a Reorganization Plan?

A Chapter 11 reorganization plan is required to cover several elements, including:

  • A classification of all claims and debts. Typical classifications include: secured creditors (debts backed by collateral), priority unsecured creditors (debts not backed by collateral that will be paid first), general unsecured creditors (debts that will be paid after priority unsecured creditors), and equity holders (those who hold an ownership interest in the company). Claims must be “substantially similar” to be properly classified together.
  • A description of how each class of creditor will be treated. Specifically, this spells out how each class will be compensated under the plan.
  • Other provisions that facilitate the settlement of claims, include rejecting lease agreements, assigning contracts, liquidating assets, undoing transfers eligible for avoidance under the Bankruptcy Code, or modifying secured creditors’ rights to payment or surrender of collateral.

What If the Chapter 11 Plan Fails?

Under the Bankruptcy Code, all impaired creditors — those who will not be paid back in full under the plan of reorganization — must give their approval for the plan solicited by the debtor. At least one class of impaired creditors must vote to accept the plan before it can be approved by the court.

A class of impaired creditors is deemed to have voted in favor of a proposed plan if creditors representing at least two-thirds of the total amount of debt of the class and at least one-half of the total number of allowed claims votes in favor.

Even if some impaired creditors object to the plan, the bankruptcy court can approve the plan over those objections in a process known as “cram-down.” A bankruptcy court can approve a plan via a cram-down only if it equitably and fairly treats each class of impaired creditors.

At the confirmation hearing for a reorganization plan, the bankruptcy court will review the plan to ensure that it meets the requirements under Chapter 11, including:

  • The debtor will likely satisfy the terms of the plan.
  • The debtor has proposed the plan in good faith.
  • The plan serves the best interests of the creditors — the test for this requirement typically looks at whether the creditors will receive at least as much repayment as they would have under a Chapter 7 liquidation bankruptcy.
  • The plan treats creditors fairly and equitably. Secured creditors must be paid at least the fair value of the collateral securing their debts, and creditors cannot be paid more than the number of their allowed claims.

If no proposed plan of reorganization is approved by the court, the debtor, case trustee, and creditors may submit revised plans. Alternatively, the Bankruptcy Administrator can seek to dismiss the Chapter 11 bankruptcy case or convert the case to Chapter 7.

Even though a plan may meet these requirements, a debtor may still fail to meet the terms of the plan. A debtor may fail in its reorganization plan because of:

  • Failure to pay fees
  • Failure to pay creditors as required under the terms of the plan
  • Failure to file required reports

If a reorganization plan fails, the U.S. trustee may move to have the case dismissed or converted to a Chapter 7 bankruptcy. If the case is dismissed, the debtor may have to refile for bankruptcy, if eligible to do so. If the case is converted to Chapter 7, the debtor’s assets will become subject to liquidation.

Contact a Chapter 11 Bankruptcy Lawyer at Sasser Law Firm

Filing for bankruptcy can be a good way to position struggling businesses for future success. Talk to a Chapter 11 bankruptcy lawyer at Sasser Law Firm today. Our North Carolina bankruptcy attorneys will handle your case from start to finish. We’ll walk you through every stage of the bankruptcy process, crafting a reorganization plan that is both practical, fair, and feasible. Contact or call us at (919) 319-7400 today for a free case review.

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