The reorganization plan is a key component in a chapter 11 bankruptcy. It’s the debtor’s opportunity to detail how he/she will restructure debts and repay creditors.
The debtor is the only party allowed to submit a reorganization plan within the first 120 days of the petition filing.
After the initial 120 days, creditors can propose a reorganization plan of their own if the debtor’s plan does not meet their requirements.
In chapter 11 bankruptcy cases, the debtor is known as the debtor in possession.
He must assume the duties that are usually attributed to the trustee, including but not limited to:
- examining and objecting to creditor claims
- accounting for property
- filing monthly operating reports
- filing tax returns and final accounting reports
The debtor in possession also assumes the powers of a bankruptcy trustee. He is required to perform all investigative functions and with the court’s approval, can employ attorneys, auctioneers, appraisers and accountants to assist throughout the bankruptcy case.
Within days of filing the petition, the court notifies each creditor of the debtor’s pending bankruptcy.
It is imperative that creditors review the bankruptcy notice for the following information:
- Debtor’s name, address and aliases
- Date, time and location of the 341 meeting of creditors
- Deadline to file a proof of claim
- Deadline to file a complaint to determine dischargeability of certain debts
- An explanation of actions creditors cannot take while the automatic stay is in effect
Failure to respond or file a timely objection can hurt the creditor’s change to protect its interests and receive disbursements from the debtor’s estate.
A proof of claim is a document filed by a creditor stating the amount owed on its account.
If the debt is based on a written contract, a copy must be attached to the proof of claim. The creditor must also provide a statement itemizing the principal, interest, fees and expenses.
If the debt results from a revolving account (i.e. a credit card), the proof of claim should also include:
- Date of the last transaction
- Date the last payment was received on the account
- Name of the entity the debt was owed to at the time of the last transaction
- Name of the entity the creditor purchased the account from (if any)
- Date the account was charged off
Failure to file a timely proof of claim can cause your debt to go unnoticed, prevent you from voting on the debtor’s reorganization plan, and from receiving payments.
An automatic stay goes into effect the moment the bankruptcy petition is filed in court.
It is a period of time in which creditors, secured and unsecured, must cease all collection efforts against the debtor.
This includes foreclosure on commercial and residential real estate, repossession of automobiles, boats or other property.
While individuals can file chapter 11 bankruptcy, businesses usually rely on this chapter when they are in financial trouble, need to reorganize debts and want to continue business as usual.
Chapter 11 bankruptcy is time-consuming, complicated and more costly than other bankruptcies. The process can take years to finalize as the debtor must complete a reorganization plan to repay creditors.
Chapter 7 is the most popular, expedient and inexpensive bankruptcy of all. Debtors turn to this chapter when they want to wipe out all debt and get a fresh start.
It’s often referred to as liquidation because the debtor’s property is sold by the bankruptcy trustee and the proceeds are used to repay creditors.
If there are no assets to liquidate, unsecured creditors are forced to write off their accounts and the debtor is fully discharged from the bankruptcy with a clean slate.
Generally, it takes four to six months to obtain a full discharge and close a chapter 7 case.
The creditor’s meeting is scheduled shortly after the chapter 11 case commence, within 30 to 60 days of the petition filing.
The purpose of the 341 hearing is to review debts, assets and income reported by the debtor. The trustee is allowed to ask the debtor questions under oath about his finances, assets and any information provided in the petition.
The debtor must attend the hearing or risk dismissal of his case. Creditors can be present but are not required to attend. With approval, they too can question the debtor.
The hearing is recorded and all parties can request an audio or typewritten transcript.