Chapter 11 - Fundamentals of Bankruptcy (2023)

background

A lawsuit filed under Chapter 11 of the US Bankruptcy Code is often referred to as a "reorganization bankruptcy." Typically, the debtor remains “owner”, has the powers and duties of a trustee, is allowed to continue in business, and can borrow money with court approval. A recovery plan is proposed, creditors whose rights are affected can vote on the plan, and the plan can be upheld by the court if it receives the necessary votes and meets certain legal requirements.

How Chapter 11 works

A Chapter 11 case begins with filing a petition with the bankruptcy court having jurisdiction over the territory where the debtor resides, has his domicile, or has his principal place of business. A claim may be a voluntary claim made by the debtor, or it may be an involuntary claim made by creditors who meet certain requirements. 11 USC §§301, 303. A voluntary application must conform to the format of Form B 101 of official forms prescribed by the Judicial Conference of the United States. In addition, unless the court determines otherwise, the debtor must file with the court:

1. lists of assets and liabilities;
2. List of income and current expenses;
3. a list of current contracts and unexpired leases; and
4. a financial report. lined R Bankr. P. 1007(b).

If the debtor is an individual (or a couple filing jointly), there are additional document submission requirements. Such debtors must produce: a credit counseling certificate and a copy of a debt service plan developed by the credit counseling; Pay stubs from employers, if available, received 60 days prior to filing; a monthly net income statement and any expected increase in income or expenses after filing; and a record of any interest the debtor has in qualifying federal or state education or tuition accounts. 11 USC §521. A couple can submit a joint application or an individual application. 11 USC §302(a). 🇧🇷Download the official forms.)

A person cannot file a Chapter 11 or Chapter 11 filing if, within the previous 180 days, a prior bankruptcy filing was dismissed due to the debtor's willful failure to appear in court or comply with court orders, or voluntarily dismissed after creditors apply for relief in bankruptcy court to recover assets on which they hold liens. 11 USC §§109(g), 362(d)-(e). In addition, no person can be a debtor under Chapter 11 or any chapter of the Bankruptcy Act unless he or she has received credit counseling from an approved credit counseling agency, either in an individual or group briefing, within 180 days prior to filing. 11 USC §§109, 111. Exceptions exist in emergency situations or when the US Trustee (or bankruptcy trustee) has determined that there are not enough licensed agencies to provide the necessary advice. If a debt management plan is drawn up as part of mandatory credit counseling, it must be submitted to the court.

Courts must charge a processing fee of $1,167 and a miscellaneous administrative fee of $571. Fees are payable upon filing with the court clerk or may be paid by individual debtors in installments with court approval. 28 USC §1930(a); lined R Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. Fed. R Bankr. P. 1006(b) limits the number of installments of the filing fee to four. The last installment must be paid within 120 days after submission of the application. For reasonable reasons, the court may extend the term of any installment, provided that the last installment is paid within a maximum period of 180 days after the filing of the application. lined R Bankr. P. 1006(b). The $571 administration fee can be paid in installments in the same way as the application fee. If a joint application is made, only an application fee and an administration fee will be charged. Debtors should be aware that failure to pay these fees may result in the case being dismissed. 11 USC §1112(b)(10).

The voluntary request includes standardized information about the debtor's name(s), CPF or CPF, residence, location of primary assets (if a legal entity), the debtor's plan or intention to file a plan, and a request for discharge in the terms of the appropriate chapter of the Bankruptcy Law. When filing a voluntary application for Chapter 11 Relief or, in an involuntary instance, entering into an Order of Relief, the Debtor automatically assumes an additional identity as a “Debtor in Treasury”. 11 USC §1101. The term refers to a debtor retaining ownership and control of its assets while undergoing a Chapter 11 reorganization without the appointment of a trustee. A debtor remains a debtor in possession until the debtor's reorganization plan is confirmed, the debtor's case is terminated or switched to Chapter 7, or a Chapter 11 trustee is appointed. An administrator is appointed or elected only in some cases. Generally, as the "property debtor", the debtor conducts the business and performs many of the functions that an administrator performs in cases under other chapters. 11 USC §1107(a).

As a rule, a written disclosure statement and recovery plan must be filed with the court. 11 USC §§1121, 1125. A disclosure statement is a document that must contain sufficient information about the debtor's assets, liabilities, and businesses to allow a creditor to make an informed judgment about the debtor's recovery plan. 11 USC §1125. The information required depends on the discretion of the courts and the circumstances of each case. The content of the plan should include a classification of exposures and how each class of exposure will be addressed in the plan. 11 USC §1123. Creditors whose claims are “impeded,” ie H. those whose contractual rights are to be modified or who are to receive less than the full amount of their claims under the plan, vote on the plan by ballot. 11 USC §1126. After the disclosure statement is approved by the court and the ballots are collected and counted, the court will hold a confirmation hearing to determine whether the plan should be confirmed. 11 USC §1128.

In the case of individuals, Chapter 11 shares some similarities with Chapter 13. For example, estate assets for an individual debtor include the debtor's income and assets acquired by the debtor after filing until the case is closed, terminated, or switched; the plan may be funded from the debtor's future income; and the plan cannot be maintained against a creditor's objection without committing all of the debtor's disposable income for five years, unless the plan fully settles the claim with interest in a shorter period. 11 USC §§1115, 1123(a)(8), 1129(a)(15).

The Chapter 11 debtor owned

Chapter 11 is typically used to reorganize a business, which may be a corporation, sole proprietorship or partnership. A corporation exists separate and apart from its owners, the shareholders. A Chapter 11 bankruptcy of a corporation (corporation as debtor) does not jeopardize the personal assets of shareholders other than the value of their investment in the corporation's stock. A sole proprietorship (owner as debtor), on the other hand, does not have a separate and distinct identity from its owner(s). Thus, the insolvency proceedings of a sole proprietorship include both the business and private assets of the owner-debtor. Like a corporation, a partnership exists separately and separately from its partners. In the case of an insolvent company (partners as debtors), however, it may happen that the private assets of the partners are used to pay off the insolvency creditors or that the partners themselves are obliged to apply for insolvency protection.

Section 1107 of the Bankruptcy Code places the debtor in possession in the position of a trustee with the rights and powers of a trustee under Chapter 11 and requires the debtor to perform all investigative functions and duties of a trustee. These obligations, defined in the Bankruptcy Code and federal rules on bankruptcy proceedings, include accounting for assets, examining and filing claims, and filing information reports required by the court and U.S. trustee or receiver (see below), such as z monthly operations reports. 11 U.S.C. §§1106, 1107; lined R Bankr. P. 2015(a). A debtor in administration also has many other powers and duties of a receivership, including the right, with court approval, to hire attorneys, accountants, appraisers, auctioneers, or other professionals to assist the debtor during the bankruptcy process. Other duties include filing tax returns and reports that are required or ordered by the court upon confirmation, such as B. a final return. The US Trustee is responsible for overseeing the debtor's compliance with reporting requirements.

Rail reorganizations have specific requirements under Subchapter IV of Chapter 11 that are not covered here. Additionally, stock and commodity traders are prohibited from filing under Chapter 11 and are restricted under Chapter 7. 11 U.S.C. §109(d).

The case of the small business and the small business debtor

The Bankruptcy Act allows small business debtors to file for exemption in two different special categories of Chapter 11 to streamline processes and reduce costs. The first case, known as the Small Business Case (as defined in 11 U.S.C. §101(51C)), was established by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005, and the second, referred to as Subchapter V , was created in 2019 by the Small Business Reorganization Act (SBRA). A debtor can choose between these two options based on certain eligibility criteria. Small business and Subchapter V cases are handled differently than traditional Chapter 11 cases, primarily due to accelerated timelines and the speed with which the plan is confirmed. The two types of cases have different debt limits, which are defined as the total amount of unconditional and unsecured debt paid off at the time the debtor files for bankruptcy.

To file a small business suit, the debtor must be engaged in business or commercial activities (other than principal property or a single property operation) with total secured and unsecured debt of $3,024,725 or less, not less to 50 percent of which arose from the debtor's commercial or business activity. To file a lawsuit under Subchapter V, the debtor must be engaged in business or business activities (other than the primary ownership or operation of a single property) with a total of $7,500,000 or less, not less than 50 percent , secured and unsecured debt arising from the commercial or business activity of the debtor. For both types of small businesses, the full amount of secured and unsecured debt must be due as of the date of filing for bankruptcy.

In addition to shortened deadlines and faster plan approval, Small Business and Subchapter V cases have other significant differences from ordinary Chapter 11 cases: A committee of creditors is not appointed automatically, but only when there is cause, 11 U.S.C. §1102(a)(3), and the debtor or debtor in possession has additional obligations, 11 U.S.C. §1116.

In small business and Subchapter V cases, the debtor must attach, among other things, its most recent balance sheet, income statement, cash flow statement, and federal income tax return to the application or file an affidavit in the absence of such documents, and must attend meetings determined by the court or senior management personnel and attorneys for the US Trustee. The debtor must file ongoing records with the court about its profitability and projected cash income and expenses, whether it complies with the bankruptcy code and the federal bankruptcy code, and whether it has paid its taxes and filed its tax returns. 11 USC §§308, 1116, 1187.

Unlike Subchapter V debtors and other Chapter 11 debtors, debtors in small business cases are subject to additional US trustee oversight. At the beginning of the process, the debtor must attend an “initial debtor interview” with the US Trustee. At that time, the US trustee will assess the debtor's viability, inquire about the debtor's business plan, and explain some of the debtor's obligations, including the debtor's responsibility to file various reports. 28 U.S.C. §586(a)(7). The US Trustee will also monitor the debtor's activities during the case to determine as quickly as possible if the debtor is unable to confirm a plan.

In a case under Subchapter V, a trustee is appointed to manage the debtor's estate and supervise its reorganization. The trustee's role in a Subchapter V case is similar to that of a Chapter 12 or Chapter 13 trustee: facilitate the development and oversight of the debtor's recovery plan; attendance at important hearings; Examination of the debtor's conduct, assets and liabilities, financial condition and continuing operations of the debtor; and ensure payments are made according to the plan. 11 USC §1183. The US trustee has the same supervisory responsibilities as ordinary Chapter 11 cases. 28 USC §586.

Because certain filing deadlines vary and extensions are more difficult to obtain, a small business case generally moves more quickly than other Chapter 11 cases. In a small business case, only the debtor can file a plan during the first few years. 180 days after the suit is filed. 11 USC §1121(e). This “exclusivity period” can be extended by the court, but only to 300 days and only if the debtor proves by preponderance of evidence that the court will confirm a plan within a reasonable time. In a Subchapter V small business case, only the debtor can file a plan. 11 USC §1189. However, in other Chapter 11 cases, the court may extend the “for cause” exclusivity period to up to 18 months. Another example of the faster pace of small business and Subchapter V cases is that the debtor may not be required to file a separate disclosure statement if the court determines that the plan contains adequate information. 11 USC §§1125(f), 1181, 1187. In a traditional Chapter 11 case, the debtor must file a separate disclosure statement. 11 USC §1125.

Subchapter V cases go beyond other Chapter 11 and small business cases by allowing for relaxed plan confirmation requirements. Plans may be maintained provided they do not unfairly discriminate, are fair and equitable with respect to any class of claim or interest, provided that all of the debtor's projected disposable income (or equivalent) is paid into the plan over a period of three to five years . 11 USC §1191.

The individual real estate debtor

Debtors of individual assets are subject to special provisions of the Insolvency Code. The term “sole property” is defined as “a single piece of property or project, other than dwellings of less than four dwelling units, that generates substantially all of the gross income of a debtor that is not a family farm and on which no business is conducted by a debtor, other than the business of operating the property and ancillary activities." 11 USC §101(51B). which are not available to creditors in ordinary bankruptcy cases 11 USC §362(d) At the request of a creditor with a claim secured by property, and after notice and a hearing, the court will grant the creditor an exemption from automatic stay unless the debtor files or initiates a workable remedial plan with payment of interest to creditors within 90 days of filing the claim. action or within 30 days of the court's decision as this is a single asset real estate action. Interest payments must be equal to the non-contractual interest rate on the value of the shareholder edor on the property. 11 USC §362(d)(3).

Individually owned real estate cases are not eligible for the small business or subchapter V election. 11 USC §101(51D), 1182(1)(A).

The US Trustee or Bankruptcy Trustee

The US trustee plays an important role in overseeing the progress of a Chapter 11 case and overseeing its administration. The US Trustee is responsible for overseeing the operations of the debtor's own business and providing operating reports and fees. In addition, the US Trustee oversees professional compensation and reimbursement claims, plans, and disclosure statements filed with the court and creditor committees. The US trustee in a Chapter 11 case conducts a meeting of creditors, commonly referred to as a "section 341 meeting". 11 USC §341. The US trustee and creditors may question the debtor under oath at the Section 341 hearing about the debtor's actions, conduct, ownership and management of the case.

The US Trustee also imposes certain requirements on the Self-Governing Debtor regarding such matters as: By law, the debtor-on-debtor must pay a quarterly fee to the US Trustee for each quarter until the case is commuted or closed. 28 U.S.C. §1930(a)(6). The size of the fee, which can range from $325 to $30,000, depends on the size of the debtor's payments each quarter. If a debtor in receivership fails to comply with the US Trustee's filing requirements or bankruptcy court orders, or fails to take appropriate steps to confirm the case, the US Trustee may ask the court to dismiss the debtor's case. . converted to another Chapter of Bankruptcy Law or the case is dismissed.

In North Carolina and Alabama, bankruptcy trustees perform functions similar to US trustees in the remaining forty-eight states. The bankruptcy trustees program is administered by the Administrative Office of the United States Courts, while the US trustees program is administered by the Department of Justice. For purposes of this publication, references to US trustees also apply to recipients.

Creditor Committees

Creditors committees can play an important role in Chapter 11 cases. The committee is appointed by the US Trustee and generally consists of the unsecured creditors who hold the seven largest unsecured claims against the debtor. 11 USC §1102. The Committee: consults, inter alia, with the self-administered debtor on the administration of the case; examines the debtor's business behavior and operations; and participates in the development of a plan. 11 USC §1103. A committee of creditors may, with the approval of the court, engage a lawyer or other professionals to assist it in the performance of its functions. A creditor committee can be an important safeguard for the proper management of the self-managed debtor.

Appointment or election of an administrator

Although the appointment of a case administrator in a Chapter 11 case is a rarity, an affected party or the US Administrator may request the appointment of an administrator or examiner in a Chapter 11 case at any time prior to confirmation. The Court, at the request of any interested party or the United States Administrator, and upon prior notice and hearing, shall order the appointment of a case administrator for cause, including fraud, dishonesty, incompetence or gross mismanagement, or when such appointment is in the interests of creditors, shareholders and other interests of the estate. 11 USC §1104(a). In addition, the United States Trustee must seek the appointment of a Trustee when there are reasonable grounds to believe that any party having control of the Debtor is "believing itself guilty of actual fraud, dishonesty, or criminal conduct in the Debtor's management. or the debtor was involved in financial reporting." 11 U.S.C. §1104(e). The trustee will be appointed by the US trustee after consultation with interested parties and subject to court approval. Lined. R. Bankr. S. 2007.1. Alternatively, a trustee in a case will be elected if an interested party requests the election of a trustee within 30 days of the court order appointing a trustee, in which case the U.S. trustee will call a meeting of creditors to elect a person to act as trustee in such case 11 USC § 1104(b).

The trustee is responsible for administering the estate's assets, operating the debtor's business, and presenting a recovery plan if necessary. Section 1106 of the Bankruptcy Act requires the trustee to file a plan "as soon as practicable" or, alternatively, file a report explaining why no plan was filed or recommending that the case be moved to another chapter or closed. 11 USC §1106(a)(5).

At the request of any interested party or the U.S. trustee, the court may terminate the trustee's appointment and return the debtor to the trustee's possession at any time prior to confirmation.11 U.S.C. §1105.

In each case, as discussed above, an administrator will be appointed in accordance with Subchapter V. 11 USC §1183.

The examiner's role

The appointment of an examiner in a Chapter 11 case is rare. An auditor's role is generally more limited than that of an administrator. The Investigator is authorized to perform the Administrator's investigative functions and is required to provide a statement of any investigation undertaken. However, by order of the court, an expert may refrain from performing any other trustee duty that the court may order the trustee. 11 USC §1106. Each court has the power to determine an examiner's duties on a case-by-case basis. In some cases, the examiner may present a recovery plan, negotiate or assist the parties in negotiations, or review the debtor's records to determine if some of the claims are not properly categorized. At times, the examiner may be instructed to determine whether the evidence for the claims should be contested or whether the grounds for claim are sufficiently substantiated that further legal action should be taken. The examiner cannot later act as an administrator in the matter. 11 USC §321.

Examiners cannot be appointed in Subpart V cases. 11 USC §1181(a) (making section 1106 inapplicable in Subchapter V cases).

the automatic permanence

The automatic stay provides a period during which all judgments, collection activities, foreclosures and asset repossessions are suspended and cannot be pursued by creditors for any debt or claim that arose prior to the filing of the bankruptcy filing. As with other chapters of the Bankruptcy Act, the stay of creditors' actions against the debtor under Chapter 11 takes effect automatically when the bankruptcy filing is filed. 11 USC §362(a). However, filing a petition does not constitute a stay of certain types of action required by 11 U.S.C. §362(b). Suspension provides the debtor with a respite during which negotiations can take place to try to resolve difficulties in the debtor's financial situation.

In certain circumstances, the secured creditor can obtain a court order overruling the automatic stay. For example, if the debtor has no equity in the property and the property is not required for an effective reorganization, the secured creditor can apply for a court order voiding the stay to allow the creditor to foreclose on the property, sell and apply the proceeds to the debt. . 11 USC §362(d).

Bankruptcy law allows fee requests to be made by designated professionals during the process. For example, a trustee, debtor's attorney, or court-appointed professional may apply to the court for preliminary indemnity and recovery payments at 120-day intervals. In very large cases involving extensive legal activity, the court may allow more frequent requests. Although court-approved fees may be paid, the debtor may not make payments to professional creditors for prepayment obligations; H. Obligations that arose before filing for bankruptcy. However, the normal costs of ongoing business will continue to be paid.

Who can submit a plan?

The debtor (other than a “small business owner”) has a period of 120 days in which he has the exclusive right to file a plan. 11 USC §1121(b). This exclusivity period can be extended or shortened by the court. However, in no event shall the period of exclusivity, including any renewals, exceed 18 months. 11 USC §1121(d). After the exclusivity period expires, a creditor or trustee can file a competing plan. The US Trustee cannot file a plan. 11 USC §307.

A Chapter 11 case can last for many years unless the court, US administrator, committee or other interested party acts to ensure a timely resolution of the case. The creditors' right to file a concurrent plan provides the debtor with an incentive to file a plan within the exclusivity period and serves as a check for excessive delay in the process.

Only the debtor may file a plan in a Subchapter V case. 11 USC §1189.

avoidable transfers

The self-management debtor or the judicial trustee has the so-called "avoidance powers". These powers can be used to reverse a transfer of money or property made during a specified period before filing for bankruptcy. By preventing a particular transfer of ownership, the debtor in possession can reverse the transaction and force the return or “hand over” of payments or goods, which are then available to all creditors. In general, and subject to various objections, the power to challenge transfers applies to transfers made by the debtor within 90 days of filing the request. However, transfers to "insiders" (ie, relatives, general partners and directors or officers of the debtor) made up to one year before filing can be avoided. 11 USC §§101(31), 101(54), 547, 548. Additionally, under 11 U.S.C. Section 544 allows the trustee to prevent transfers under applicable state law, which generally provides for longer periods. Write-off powers prevent unfair prepayments to one creditor at the expense of all other creditors.

Cash guarantee, appropriate protection and working capital

While the preparation, confirmation, and implementation of a reorganization plan are essential for a Chapter 11 case, there may be other issues that need to be addressed by the debtor in self-management. The debtor himself may use, sell or lease the estate in the normal course of his activity without prior authorization, unless otherwise determined by the court. 11 USC §363(c). If the intended sale or use is outside the normal course of business, the debtor must obtain court approval.

A self-debtor cannot use “cash collateral” without the consent of the collateral taker or the approval of the court, which must first determine whether the interests of the collateral taker are adequately protected. 11 USC §363. Section 363 defines “cash security” as cash, negotiable instruments, title deeds, securities, deposit accounts or other cash equivalents, if acquired, in which the estate and an entity other than the estate have an interest. It includes income, proceeds, issues, rents or capital gains and fees, charges, bills or payments for the use or occupancy of rooms and other public facilities in hotels, motels or other lodging establishments subject to a guarantee from a creditor.

When "cash collateral" is used (delivered), secured creditors are entitled to additional protection under Section 363 of the Bankruptcy Act. The self-management debtor must apply for a court order on the use of the cash deposit. Subject to the secured creditor's consent or court approval for the use of cash collateral by the debtor in possession, the debtor in possession must segregate and account for all cash collateral in its possession. 11 USC §363(c)(4). A party with an interest in the property being used by the debtor may ask the court to prohibit or impose conditions on such use to the extent necessary to provide the creditor with “reasonable protection”.

Adequate protection may be required to protect the value of the creditor's interest in property used by the debtor in possession. This is especially important if the property value is falling. The debtor may make periodic or fixed cash payments, or establish an additional or substitute security that results in adequate protection of the creditor's interest in the property. 11 USC §361.

If a Chapter 11 debtor needs working capital, they can obtain it from a creditor, giving the creditor a court-approved “supremacy” over other unsecured creditors or a lien on ownership of the estate. 11 USC §364.

moves

Prior to confirmation of a plan, a number of activities may occur in a Chapter 11 case. The continuation of the debtor's business may result in the filing of a series of contested claims. The most common are those seeking exemption from automatic suspension, using cash collateral or obtaining a loan. There may also be litigation over outstanding (ie, unperformed) contracts and unexpired leases and the acceptance or rejection of such outstanding contracts and unexpired leases by the debtor in possession. 11 USC §365. Delays in formulating, filing, and obtaining confirmation of a plan often lead creditors to file motions to have the stay lifted, the case switched to Chapter 7, or the case dismissed altogether.

Opposition Procedure

Often, the self-managed debtor takes legal action, known as an adversarial process, to recover money or property from the estate. Litigation proceedings may take the form of warranty void actions, preference void actions, fraudulent transfer void actions, or post-application transfer void actions. This procedure is subject to Part VII of the Federal Bankruptcy Code. Occasionally, a committee of creditors may be authorized by the bankruptcy court to hear such actions against insiders of the debtor if the plan so provides or the debtor has declined an application to do so. Creditors may also initiate an adversarial process through claims to determine the validity or priority of a lien, overturn an order confirming a plan, determine the excusability of a debt, obtain an injunction, or rank another creditor's claim as priority.

Expectations

The Bankruptcy Law defines a claim as: (1) an entitlement to payment; (2) or a right to an adequate remedy for default if the breach gives rise to a claim for payment. 11 USC §101(5). In general, any creditor whose claim is not timed (i.e., listed by the debtor on the debtor's lists) or is timed as contested, contingent, or unresolved must file Proof of Claim (and attach evidence supporting the claim) to be treated as to Creditors for the purposes of voting on the Scheme and distribution under that Scheme. lined R Bankr. P. 3003(c)(2). However, submission of Proof of Claim is not required if the creditor's claim is scheduled (but not listed by the debtor as contested, conditional, or unresolved), as the debtor's statements will serve as evidence of the validity and value of those claims. 11 USC §1111. If a Proposed Creditor chooses to file a claim, duly filed Proof of Claim supersedes any record of that claim. lined R Bankr. P. 3003(c)(4). It is the creditor's responsibility to determine whether the credit is correctly listed in the debtor's records. The debtor must notify creditors whose names are added and whose claims are listed as a result of a change in schedules. The notice must also inform these creditors of their right to file Proof of Claims and that failure to do so may prevent them from voting on the debtor's restructuring plan or participating in any distributions under that plan. If a debtor changes the schedule of liabilities to add a creditor or changes the status of receivables to disputed, contingent, or unresolved, the debtor must notify each affected entity of the change. lined R Bankr. P. 1009(a).

stock holders

A shareholder is the holder of a share certificate in the debtor. Examples of an equity interest include an interest in a corporation, a limited partner's interest in a limited partnership, or a right to buy, sell or subscribe for a share, security or interest in an interest in a corporation or an interest in a limited partnership. 11 U.S.C. §101(16),(17). A shareholder can vote on the restructuring plan and present a proof of interest in lieu of a proof of entitlement. An interest statement is considered filed for all interest that appears in the debtor's records unless listed as disputed, conditional, or unresolved. 11 USC §1111. A Shareholder whose interest is not scheduled or expected to be contested, contingent or unliquidated must provide proof of interest in order to be treated as a creditor for purposes of voting under the Scheme and distribution under this Scheme. lined R Bankr. P. 3003(c)(2). A duly submitted proof of interest supersedes any planning of that interest. lined R Bankr. P. 3003(c)(4). In general, most of the provisions that apply to Proofs of Claims, as explained above, also apply to Proofs of Interest.

Conversion or Termination

A debtor in a Chapter 11 case has the sole absolute right to switch the Chapter 11 case to a Chapter 7 case unless: (1) the debtor does not own a debtor; (2) the case was originally filed as a Chapter 11 involuntary case; or (3) the case was commuted to a Chapter 11 case, except at the request of the debtor. 11 USC §1112(a). A debtor in a Chapter 11 case does not have an absolute right to file the case upon request.

An interested party may file a motion to dismiss or switch a Chapter 11 case to a Chapter 7 case “for cause”. If cause is found after notice and hearing, the court generally must draft or dismiss the case (whichever is in the best interests of creditors and the estate), unless it expressly determines that the requested commutation or termination is not in the best interests of the estate. creditors and the estate. 11 USC §1112(b). Alternatively, the court may decide that appointing a trustee or chapter 11 auditor is in the best interest of creditors and the estate. 11 USC §1104(a)(3). Section 1112(b)(4) of the Bankruptcy Act lists several examples of reasons that would support discharge or commutation. For example, the moving party can demonstrate cause by showing that there has been a significant or continuing loss of property and that there is no reasonable likelihood of rehabilitation; gross mismanagement of assets; failure to maintain insurance that poses a risk to property or the public; or the unauthorized use of cash collateral that causes significant harm to a creditor.

Unjustified non-compliance with reporting and reporting obligations is also considered grounds for termination or conversion; failure to attend a meeting of creditors or an audit without valid reason; failure to provide timely information to the US administrator; and failure to timely pay post-petition taxes or submit timely post-petition statements to the Fed. R Bankr. P. 2004. Additionally, failing to file a disclosure statement or file and certify a plan within the time frame established by bankruptcy law or court order; inability to carry out a plan; refusal or revocation of confirmation; Failure to complete a confirmed plan constitutes “cause” for termination under the Act. In individual cases, the non-payment of child support by the debtor after the application is “cause” for termination or commutation.

Section 1112(c) of the Bankruptcy Act provides an important exception to the commutation procedure in a Chapter 11 case. Under this provision, the court is prohibited from converting a case involving a farmer or charity into a case of Chapter 7 liquidation, unless there is fault or a claim for conversion.

The Disclosure Statement

Generally, the debtor (or any proponent of the plan) must file a written disclosure statement and obtain court approval before the recovery plan is voted on. The disclosure statement must contain "reasonable information" about the debtor's business to enable the holder of a claim or interest to make an informed judgment about the plan. 11 USC §1125. However, in a small business case, the court may find that the plan itself contains sufficient information and that a separate disclosure statement is not required. 11 USC §1125(f). A disclosure statement is not required in a Subchapter V case unless the court has ordered otherwise. 11 USC §1181(b). After the disclosure statement is filed, the court must hold a hearing to determine whether the disclosure statement should be approved. Approval or rejection of a plan generally cannot be sought until the court has approved the written disclosure statement. 11 USC §1125(b). An exception to this rule is when the party's first order predates the bankruptcy filing, as would be the case with so-called "packaged" bankruptcy plans (that is, where the debtor negotiates a plan with constituents of significant creditors prior to the bankruptcy filing). The continued soliciting of such parties after submission is not prohibited. After the court approves the disclosure statement, the debtor or sponsor of a plan can begin applying for acceptance of the plan, and creditors can also apply for rejection of the plan.

Upon approval of a disclosure statement, the plan proponent must submit the following to the US trustee and all creditors and shareholders: (1) the plan or a court-approved summary of the plan; (2) the court-approved disclosure statement; (3) notice of the time frame within which plan acceptances and denials may be submitted; and (4) other information the court may request, including any court opinion approving the disclosure statement or a summary of the court-approved opinion. lined R Bankr. P. 3017(d). In addition, the Debtor shall send to creditors and shareholders entitled to vote on the plan or plans the following: (1) notice of the period indicated for filing objections; (2) Notification of the date and time of the Plan Confirmation Hearing; and (3) a vote to accept or reject the plan and, if applicable, a designation of creditors to identify their preference among competing plans. I WOULD GO. However, if a disclosure statement is filed in a small business case, the court may conditionally approve a disclosure statement subject to final approval after notice and a combined disclosure statement/plan approval hearing. 11 USC §1125(f).

Adoption of the reorganization plan

As mentioned earlier, only the debtor can file a recovery plan during the first 120 days after filing the claim (or after receipt of the appeal if an involuntary claim was made). The court may extend this period of exclusivity up to 18 months after the filing date. In addition, the debtor has 180 days from the date of filing or receipt of the appeal request to seek approvals for its plan. 11 USC §1121. The court may extend (up to 20 months) or shorten this exclusivity period for important reasons. 11 USC §1121(d). In practice, debtors typically apply for time extensions for filing and plan acceptance at the same time, so any court-ordered order gives the debtor two months to request acceptances after filing a plan before a competing plan can be filed.

If the exclusivity period expires before the debtor has filed and received plan approval, other interested parties in a case, such as the committee of creditors or a creditor, may file a plan. Such a plan may compete with a plan submitted by another interested party or by the debtor. If an administrator is appointed, the administrator must present a plan, a report explaining why the administrator will not present a plan, or a recommendation to convert or close the case. 11 USC §1106(a)(5). A plan sponsor is subject to the same disclosure and collection requirements as a debtor.

In a Chapter 11 case, a settlement plan is allowed. Such a plan often allows the debtor in possession to liquidate the business in more economically favorable circumstances than a Chapter 7 liquidation. It also allows creditors to take a more active role in liquidating assets and distributing proceeds than in a Chapter 7 case.

Section 1123(a) of the Bankruptcy Act lists the mandatory provisions of a Chapter 11 plan and Section 1123(b) lists the discretionary provisions. Section 1123(a)(1) provides that a Chapter 11 plan must identify classes of benefits and interests for treatment of reorganization. Generally, a plan will classify claimants as secured creditors, senior unsecured creditors, general unsecured creditors, and shareholders.

Under Section 1126(c) of the Bankruptcy Act, an entire claim class is considered to accept a plan if the plan is accepted by creditors who hold at least two-thirds of the value and more than half of the claims allowed in the class. . Pursuant to Section 1129(a)(10), the court cannot confirm a plan on classes of impaired receivables unless it has been accepted by at least one group of non-participants who hold impaired receivables (i.e., receivables that do not continue to be paid in full) or when a statutory, equitable or contractual right is modified). Furthermore, pursuant to section 1126(f), holders of unaltered rights are presumed to have accepted the plan.

Under Section 1127(a) of the Bankruptcy Act, the plan proponent may amend the plan at any time prior to confirmation, but the amended plan must meet all of the requirements of Chapter 11. If, after the vote, there is a proposed amendment and the court, after hearing, finds that the proposed amendment does not prejudice the treatment of a creditor who has not accepted the amendment in writing, the amendment is deemed to have been accepted by all creditors who accept the previously accepted plan . lined R Bankr. P. 3019. If the proposed amendment adversely affects the claims of dissenting creditors, a new vote must be taken.

As more than one plan may be submitted for creditors' approval, each proposed plan or amendment must be dated and identified with the name of the entity or entities submitting the plan or amendment. lined R Bankr. P. 3016(b). When competing plans are presented that meet the requirements for certification, the court must consider the preferences of creditors and shareholders in determining which plan should be certified.

Anyone involved can file an objection to approval of the plan. Bankruptcy law requires the court to hold a hearing to confirm a plan when asked to do so. If no objections to confirmation are filed in a timely manner, bankruptcy law allows the court to determine whether the plan was proposed in good faith and in accordance with the law. lined R Bankr. P. 3020(b)(2). Before certification can be granted, the court must satisfy itself that all other certification requirements set forth in Section 1129 of the Bankruptcy Act have been met, even if no objection has been raised. To uphold the plan, the court must determine, among other things, that: (1) the plan is feasible; (2) is proposed in good faith; and (3) the Plan and its proponent comply with the Bankruptcy Law. To meet the operability requirement, the court must determine that confirmation of the plan is unlikely to be followed by liquidation (unless the plan is a liquidation plan) or that further financial reorganization is required.

the relief

Section 1141(d)(1) generally provides that certification of a plan releases the debtor from any debt incurred prior to the date of certification. Upon approval of the plan, the debtor must make payments under the plan and is bound by the terms of the recovery plan. The approved plan creates new contractual rights and supersedes or supersedes pre-bankruptcy agreements.

There are, of course, exceptions to the general rule that an order confirming a plan counts as discharge. Confirmation of a reorganization plan exempts any type of debtor – company, partnership or individual – from most types of previous debt. However, it does not exempt an individual debtor from debts declared inexcusable under Section 523 of the Bankruptcy Act. (1) In addition, except in certain circumstances, no relief is available to an individual debtor unless and until all payments under the Plan have been made. 11 USC §1141(d)(5). Confirmation does not discharge the debtor when the plan is a liquidation plan, as opposed to a recovery plan, unless the debtor is an individual. If the debtor is an individual, approval of a settlement plan will result in discharge (after scheduled payments), unless there are grounds for denying the debtor guardianship if the case is adjudicated under Chapter 7 instead of Chapter 11. 11 U.S.C. §§727(a), 1141(d).

Plan change after confirmation

The proponent of a plan may amend the plan at any time after approval and prior to "substantial completion" if the amended plan meets certain requirements of the Bankruptcy Act. 11 USC §1127(b), 1193(b). This must be distinguished from the pre-confirmed plan change. A modified post-confirmation plan does not automatically become a plan. A post-confirmation plan amended in a Chapter 11 case becomes a plan only “if circumstances warrant such amendment” and the court, after notice and hearing, confirms the plan as amended. If the debtor is an individual, the plan may be amended upon certification at the request of the eligible debtor, trustee, US Trustee, or holder of an unsecured claim to make adjustments to payments due under the plan. 11 USC §1127(e).

post confirmation management

Notwithstanding the registration of the order of confirmation, the court is empowered to issue any other orders necessary for the administration of the assets. lined R Bankr. P. 3020(d). This power would include a posteriori determination of objections to contradictory claims or procedures that must be resolved before a plan can be fully implemented. Sections 1106(a)(7) and 1107(a) of the Bankruptcy Act require a property debtor or trustee to report progress in implementing a plan after certification. A chapter 11 trustee or retained debtor has a number of responsibilities after certification, including completing the plan, reporting on the status of completion, and requesting a final disposition.

Revocation of order confirmation

Revocation of Order Confirmation is a reversal or cancellation of confirmation of a Plan. The request for revocation of confirmation, if any, must be made by the interested party within 180 days of confirmation. The court, after notice and a hearing, may revoke a confirmation order "if and only if the [confirmation] order was obtained by fraud." 11 USC §1144.

the final decree

Revocation of Order Confirmation is a reversal or cancellation of confirmation of a Plan. The request for revocation of confirmation, if any, must be made by the interested party within 180 days of confirmation. The court, after notice and a hearing, may revoke a confirmation order "if and only if the [confirmation] order was obtained by fraud." 11 USC §1144.

Comments

1. Unpaid debts include child support debts and child support payments, certain taxes, debts for certain improper payments for educational services or loans made or guaranteed by a governmental entity, debts for willful and malicious damages of the debtor to another entity or property of another entity, debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated with alcohol or other substances, and debts under certain criminal recovery orders.11 U.S.C. §523(a). The debtor remains liable for these types of debts to the extent they are not paid in a Chapter 11 case. Debts for money or property obtained by misrepresentation, debts for fraud or defamation while acting in a fiduciary capacity, and debts for willful injury and debtor's malicious possession of another entity or another entity's property will be forgiven unless a creditor makes a timely motion and prevails in an action to have such debts declared irrecoverable. 11 USC §523(c); lined R Bankr. P. 4007(c).