What is a Chapter 11 Reorganization Plan?
Reorganization plans are at the center of any Chapter 11 bankruptcy case. Below, our West Palm Beach Chapter 11 bankruptcy lawyer explains more about these plans.
When filing Chapter 11 bankruptcy, the reorganization plan is at the center of it. While it is possible for businesses to discharge, or eliminate, some of their debt, the majority of it is restructured in a reorganization plan so the business owner can repay it more easily. The reorganization plan created by the business owner must be approved by the bankruptcy court, and so, it is important to have legal counsel when drafting it. Below, our West Palm Beach Chapter 11 bankruptcy lawyer explains more about these plans.
Who Can File a Plan?
The title of Subchapter II of Chapter 11 is ‘The Plan.’ This section starts by outlining who can file a reorganization plan. The borrower, or the business filing Chapter 11, can create a plan at any time, including when they file for bankruptcy. For the first 120 days, only borrowers can file a plan in most cases. However, there are times when the bankruptcy trustee, creditors, or other interested parties can also file a plan, either in place of the borrower’s plan or in addition to it.
What Does the Reorganization Plan Include?
Chapter 11 reorganization plans outline how companies in financial distress will reorganize their debts and operations to ensure they are a viable business when the case is finalized. The most important components of a reorganization plan in Chapter 11 are as follows:
- Classification of claims: The reorganization plan will categorize any creditor claims against a company as secured debt, unsecured debt, or equity interests. The plan will also specify how each class will be treated. This outlines whether the debt will be paid partially or in full, if certain debt will be converted into equity ownership, or if the terms of the debt will be modified.
- Restructuring transactions: One of the purposes of Chapter 11 is to ensure the company emerges as a viable business. As such, the plan will outline any operational changes meant to improve the company’s financial position. This may include reducing expenses, generating new revenue, or negotiating new financing.
- Management: A plan may also include provisions regarding the future management of the company. This can include who will sit on the Board of Directors, identify key management personnel, and develop a new business plan.
After the plan is created, the borrower’s creditors must approve the plan before it is submitted to the bankruptcy court. The court will review the plan and ensure it is fair, feasible, and complies with bankruptcy law.
Our Chapter 11 Bankruptcy Lawyer in West Palm Beach Can Help with Your Plan
The reorganization plan is central to a Chapter 11 bankruptcy, but you should not create one on your own. At Brian K. McMahon, P.A., our West Palm Beach Chapter 11 bankruptcy lawyer can help you draft a plan that will be approved by your creditors and the court, and give your business the best outlook once your case is resolved. Call us now at 561-658-1789 or contact us online to schedule a consultation and to get the legal help you need.