What is the Role of the Debtor in Subchapter 5 Chapter 11 Bankruptcy?
Debtors have a similar role in Subchapter 5 bankruptcy as they do in traditional Chapter 11 cases, but there are some slight differences.
Debtors in Subchapter V Chapter 11 bankruptcy have a role that is similar to borrowers in traditional Chapter 11 cases. Borrowers in Subchapter V can propose a plan to reorganize their business, continue business operations, and confirm a plan without first obtaining a vote from creditors, as long as the plan is fair. Borrowers will also make payments according to the plan and work with the Subchapter V trustee. Below, our West Palm Beach bankruptcy lawyer explains in greater detail.
Debtor-in-Possession
The primary role of borrowers in Subchapter V is to assume the primary responsibilities of managing business operations and assets during bankruptcy proceedings. As the debtor-in-possession, borrowers must:
- Continue business operations, including making daily business decisions, unless the court decides otherwise
- Act as a fiduciary for creditors by protecting the bankruptcy estate and operating the business in a manner that is in the best interests of all parties
- Obtain court approval before taking any action outside the ordinary course of business, such as selling valuable property
- Provide regular status updates and financial reporting to the court, creditors, and the U.S. trustee
Collaborating with the Trustee
The appointment of a trustee is an important aspect of Subchapter V that does not apply in traditional Chapter 11 cases. The trustee provides oversight in the case and debtors are obligated to work closely with them. Specifically, debtors must:
- Work with the trustee to create a reorganization plan
- Cooperate with the trustee’s review of the business’ operations and financial situation
- Participate in a status conference with creditors and the trustee to discuss the plan
Drafting a Plan of Reorganization
Debtors in Subchapter V retain the right to propose a reorganization plan, which can be confirmed more quickly than in a traditional Chapter 11 case. Debtors are responsible for the following:
- Drafting and filing the reorganization plan within a certain period of time, usually 90 days
- Identifying all debts, classifying claims, and outlining how each class of creditors will be repaid
- Proposing a plan that is fair to all creditors
- Paying creditors over a time period of three to five years
While all Chapter 11 debtors are responsible for the above, they can also forego the lengthy disclosure statement process that is required in traditional Chapter 11 cases. This greatly accelerates the process.
Our Bankruptcy Lawyer in West Palm Beach Can Help You Fulfill Your Obligations
Debtors have many obligations during Subchapter V Chapter 11 bankruptcy. If you are thinking about filing, do not do it alone. Failing to fulfill any obligation, even as minor as attending a court hearing, can greatly harm your case. At Brian K. McMahon, P.A., our West Palm Beach bankruptcy lawyer can help you through the process and ensure you meet all of your obligations so you obtain a favorable outcome. Call us today at (561) 658-1789 or contact us online to schedule a consultation and to learn more about how we can help.