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Chapter 11 – Bankruptcy Basics | United States Courts

background

A case filed under Chapter 11 of the United States Bankruptcy Code is often referred to as a “reorganization” bankruptcy. Generally, the debtor remains “in possession,” has the powers and duties of a trustee, can continue to operate his or her business, and can, with court approval, borrow new money. a plan of reorganization is proposed, creditors whose rights are affected can vote on the plan, and the court can confirm the plan if it obtains the required votes and meets certain legal requirements.

how chapter 11 works

A chapter 11 case begins with the filing of a petition in the bankruptcy court serving the area where the debtor has domicile, residence, or principal place of business. A petition can be a voluntary petition, which is filed by the debtor, or it can be an involuntary petition, which is filed by creditors who meet certain requirements. 11 usc §§ 301, 303. a voluntary petition must conform to the format of form b 101 of the official forms prescribed by the judicial conference of the united states. Unless the court orders otherwise, the debtor must also file with the court:

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  1. lists of assets and liabilities;
  2. a schedule of current income and expenses;
  3. a schedule of outstanding contracts and current leases; and
  4. a statement of financial affairs. fed. r. bank pages 1007(b).

If the debtor is an individual (or a married couple filing jointly), there are additional filing requirements. such debtors must submit: a credit counseling certificate and a copy of any debt repayment plan developed through credit counseling; pay stub from employers, if any, received 60 days prior to filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in qualified federal or state accounts for education or tuition. 11 USC § 521. A married couple may file a joint petition or individual petitions. 11 usc § 302(a). (download the official forms).

A person may not file under Chapter 11 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed because the debtor willfully failed to appear in court or failed to comply with the court orders, or was voluntarily dismissed after creditors sought help from the bankruptcy court to recover the property on which they had liens. 11 usc §§ 109(g), 362(d)-(e). furthermore, no individual may be a debtor under chapter 11 or any chapter of the bankruptcy code unless he or she, within 180 days prior to filing, has received credit counseling from an approved credit counseling agency, either in an individual or group briefing. 11 usc §§ 109, 111. there are exceptions in emergency situations or where the u.s. trustee (or bankruptcy administrator) has determined that there are not enough approved agencies to provide the required advice. If a debt management plan is developed during the required credit counseling, it must be filed with the court.

Courts must charge a case filing fee of $1,167 and a miscellaneous administrative fee of $571. fees must be paid to the court clerk at the time of filing or may, with the court’s permission, be paid by individual debtors in installments. 28 USC § 1930(a); fed. r. bank pages 1006(b); Bankruptcy Court Miscellaneous Fee, Item 8. Fed. r. bank pages 1006(b) limits the number of installments for the filing fee to four. the final fee must be paid no later than 120 days after filing the petition. for cause shown, the court may extend the term of any installment, provided that the last installment is paid no later than 180 days after the filing of the petition. fed. r. bank pages 1006(b). the $571 administrative fee can be paid in installments in the same manner as the filing fee. if a joint petition is filed, only a filing fee and an administrative fee are charged. Debtors should be aware that failure to pay these fees may result in the dismissal of the case. 11 USC § 1112(b)(10).

The voluntary petition will include standard information about the debtor’s name(s), social security number or tax identification number, residence, location of major assets (if a business), the debtor’s plan, or intend to file a plan and request for relief under the appropriate chapter of the bankruptcy code. By filing a voluntary petition for relief under chapter 11 or, in an involuntary case, entering an order for relief, the debtor automatically assumes an additional identity as the “debtor in possession.” 11 USC § 1101. The term refers to a debtor who retains possession and control of his or her assets while undergoing a chapter 11 reorganization, without the appointment of a case trustee. A debtor will remain a debtor in possession until the debtor’s plan of reorganization is confirmed, the debtor’s case is dismissed or converted to chapter 7, or a chapter 11 trustee is appointed. The appointment or election of a trustee occurs only in a small number of cases. Generally, the debtor, as “debtor in possession,” operates the business and performs many of the functions that a trustee performs in cases under other chapters. 11 usc § 1107(a).

Generally, a written disclosure statement and plan of reorganization must be filed with the court. 11 USC §§ 1121, 1125. A disclosure statement is a document that must contain information about the debtor’s assets, liabilities, and businesses sufficient to enable a creditor to make an informed judgment about the debtor’s plan of reorganization. 11 USC § 1125. The information required is governed by judicial discretion and the circumstances of the case. the content of the plan must include a classification of claims and must specify how each class of claims will be treated in the plan. 11 USC § 1123. Creditors whose rights are “impaired,” that is, those whose contractual rights are to be modified or who will be paid less than the full value of their rights under the plan, vote on the plan by ballot. 11 USC § 1126. After the court approves the disclosure statement and the ballots are collected and counted, the court will hold a confirmation hearing to determine whether to confirm the plan. 11 usc § 1128.

For individuals, chapter 11 has some similarities to chapter 13. For example, an individual debtor’s estate property includes the debtor’s earnings and property acquired by the debtor after filing until the case is closed, dismissed or converted. ; funding for the plan may come from the debtor’s future earnings; and the plan cannot be confirmed over a creditor’s objection without jeopardizing all of the debtor’s disposable income for five years, unless the plan pays the claim in full, with interest, over a shorter period of time. 11 usc §§ 1115, 1123(a)(8), 1129(a)(15).

the chapter 11 debtor in possession

Chapter 11 is typically used to reorganize a business, which can be a corporation, sole proprietorship, or partnership. A corporation exists separate and apart from its owners, the shareholders. The Chapter 11 bankruptcy case of a corporation (corporation as debtor) does not put at risk the personal assets of the shareholders more than the value of their investment in company stock. a sole proprietorship (owner as debtor), on the other hand, does not have a separate and distinct identity from its owner(s). Consequently, a bankruptcy case involving a sole proprietorship includes both the business and the personal assets of the owner-debtors. Like a corporation, a partnership exists separate and apart from its partners. in a partnership bankruptcy case (partnership as debtor), however, the personal assets of the partners may, in some cases, be used to pay creditors in the bankruptcy case or the partners themselves may be forced to seek protection for bankruptcy.

Section 1107 of the bankruptcy code places the debtor in possession in the position of a trustee, with the rights and powers of a chapter 11 trustee, and requires the debtor to perform all the functions and duties of a trustee except those research. . These duties, set forth in the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, include accounting for property, examination and objection of claims, and filing of informational reports as required by the Court and the United States. bankruptcy trustee or administrator (discussed later), such as monthly operating reports. 11 usc secs. 1106, 1107; fed. r. bank pages 2015(a). The debtor in possession also has many of the other powers and duties of a trustee, including the right, with court approval, to employ attorneys, accountants, appraisers, auctioneers, or other professionals to assist the debtor during his or her bankruptcy case. Other responsibilities include filing tax returns and reports as necessary or court-ordered after confirmation, such as a final accounting. the United States. The trustee is responsible for monitoring the debtor-in-possession’s compliance with reporting requirements.

Railroad reorganizations have specific requirements under subchapter iv of chapter 11, which will not be addressed here. In addition, stock and commodity brokers are prohibited from filing under Chapter 11 and are restricted to Chapter 7. 11 U.S.C. § 109(d).

the case of small business and small business debtors

The bankruptcy code allows small business debtors to file for relief under two different special chapter 11 categories intended to streamline processes and reduce costs. the first, called the small business case (by definition at 11 u.s.c. § 101(51c)), was created in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act (bapcpa), and the second, called subchapter v, was created in 2019 by the small business reorganization act (sbra). A debtor can choose either of these two options based on certain eligibility criteria. Both small business and Subchapter V cases are treated differently than a traditional Chapter 11 case primarily because of the expedited deadlines and the speed with which the plan is confirmed. The two types of cases have different debt limits, defined as the total amount of non-contingent liquidated secured and unsecured debt at the time the debtor files their bankruptcy case.

To file a small business case, the debtor must be engaged in commercial or commercial activities (other than primarily owning or operating a single piece of real property) with total secured and unsecured debts of $3,024,725 or less, not less than 50 percent of which come from the debtor’s commercial or business activities. to bring a subchapter v case, the debtor must be engaged in trade or business (other than primarily owning or operating a single piece of real property) with total combined secured and unsecured debts of $7,500,000 or less, not less than 50 percent of which arose from the commercial or business activities of the debtor. For both types of small business cases, the combined total of secured and unsecured debts must be owed as of the filing date of the bankruptcy petition.

In addition to the expedited deadlines and quicker plan confirmation, small business and subchapter V cases have other key differences from ordinary chapter 11 cases: a creditors’ committee is not automatically appointed, and in instead, it will only be designated upon showing cause, 11 u.s.c. § 1102(a)(3), and the debtor or debtor in possession has additional duties, 11 u.s.c. § 1116.

In both small business and subchapter v cases, the debtor must, among other things, attach its most recent balance sheet, statement of operations, statement of cash flow, and federal tax return to the application. , or provide a sworn statement explaining the absence of such documents, and must attend meetings scheduled by the court or the us. trustee through senior management staff and attorneys. the debtor must make ongoing filings with the court about its profitability and projected cash receipts and disbursements and must report whether it complies with the bankruptcy code and federal rules of bankruptcy procedure and whether it has paid its taxes and filed its tax returns . 11 usc §§ 308, 1116, 1187.

Unlike subchapter v and other chapter 11 debtors, debtors in small business cases are subject to additional supervision by the us. uu. trustee. At the beginning of the case, the debtor must attend an “initial debtor interview” with the US. uu. trustee at which time the us The trustee will assess the viability of the debtor, inquire about the debtor’s business plan, and explain certain obligations of the debtor, including the debtor’s responsibility to file various reports. 28 USC § 586(a)(7). the United States. The trustee will also monitor the debtor’s activities during the case to identify as early as possible if the debtor will not be able to confirm a plan.

In a subchapter v case, a trustee will be appointed to manage the debtor’s estate and oversee its reorganization. The role of the trustee in a subchapter V case is similar to that of a chapter 12 or 13 trustee: facilitating the development and overseeing the debtor’s reorganization plan; appear at important hearings; investigate the debtor’s conduct, assets and liabilities, financial condition, and operation of the debtor’s business as a going concern; and ensure that payments are made according to the plan. 11 usc § 1183. us. the trustee has the same supervisory responsibilities as ordinary chapter 11 cases. 28 usc § 586.

Because certain filing deadlines are different and extensions are more difficult to obtain, a small business case typically proceeds faster than other chapter 11 cases. In a small business case, only the debtor can file a plan for the first 180 days after the case 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 shows by a preponderance of the 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. In other chapter 11 cases, however, the court may extend the period of exclusivity “for cause” up to 18 months. Another example of the faster pace of small business and subchapter V cases is that the debtor may not need 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 relaxed plan confirmation requirements. plans may be confirmed as long as they do not unfairly discriminate, are fair and equitable with respect to each class of claims or interests, provided that all of the debtor’s projected disposable income (or equivalent value) is paid to the plan for a period of three to period of five years. 11 usc § 1191.

the real estate debtor of a single asset

Single-asset real estate debtors are subject to special provisions of the bankruptcy code. the term “single asset real estate” is defined as “a single property or project, other than residential real estate with fewer than four residential units, that generates substantially all of the gross income of a debtor who is not a family farmer and upon which a debtor is not conducting any substantial business other than the business of operating the real property and incidental activities.” 11 usc § 101 (51b). The Bankruptcy Code sets forth circumstances under which creditors of a single-asset real estate debtor may obtain relief from the automatic stay that are not available to creditors in ordinary bankruptcy cases. 11 usc § 362(d). at the request of a creditor with a claim secured by the single real property and after notice and a hearing, the court shall grant automatic stay relief to the creditor unless the debtor files a feasible plan of reorganization or begins paying interest to the creditor. creditor creditor within 90 days from the date the case is filed, or within 30 days after the court determines that the case is a single-asset real estate case. interest payments must be equal to the non-default contract interest rate on the value of the creditor’s interest in the real property. 11 usc § 362(d)(3).

Single asset real estate cases are not eligible for the small business election or subchapter v. 11 usc § 101(51d), 1182(1)(a).

united states bankruptcy trustee or administrator

united states trustee plays an important role in monitoring the progress of a chapter 11 case and overseeing its administration. the United States. The trustee is responsible for supervising the operation of the business by the debtor in possession and the presentation of the reports and operating fees. in addition, the us The trustee oversees practitioner compensation and reimbursement applications, plans, and disclosure statements filed with the court and creditors’ committees. the United States. trustee holds a meeting of creditors, often called a “section 341 meeting,” in a chapter 11 case. 11 usc § 341. us. the trustee and creditors may question the debtor under oath at the section 341 meeting regarding the debtor’s acts, conduct, property, and administration of the case.

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United States The Trustee also imposes certain requirements on the Debtor in Possession regarding such matters as reporting monthly income and operating expenses, establishing new bank accounts, and paying current employee withholdings and other taxes. By law, the debtor in possession must pay a quarterly installment to the us. trustee for each quarter of a year until the case is converted or dismissed. 28 USC § 1930(a)(6). The amount of the commission, which can range between $325 and $30,000, depends on the amount of the debtor’s disbursements during each quarter. If a debtor in possession fails to meet US reporting requirements. trustee or bankruptcy court orders, or fails to take appropriate steps to bring the case to confirmation, the us. The trustee may file a motion with the court to have the debtor’s chapter 11 case converted to another chapter of the bankruptcy code or to have the case dismissed.

In North Carolina and Alabama, bankruptcy administrators perform functions similar to those in the United States. trustees act in the remaining forty-eight states. The bankruptcy trustee’s program is administered by the Administrative Office of the Courts of the United States, while that of the United States. The trustee program is administered by the Department of Justice. For the purposes of this publication, references to u.s. trustees are also applicable to insolvency administrators.

creditor committees

Creditors’ committees can play an important role in chapter 11 cases. The committee is appointed by the us. trustee and usually consists of unsecured creditors who have the seven largest unsecured claims against the debtor. 11 usc § 1102. among other things, the committee: consults with the debtor in possession about the administration of the case; investigates the debtor’s conduct and business operation; and participates in formulating a plan. 11 USC § 1103. A creditors’ committee may, with the approval of the court, hire an attorney or other professionals to assist in the performance of the committee’s duties. a creditors committee can be an important safeguard for the correct management of the business by the debtor in possession.

appointment or election of a case manager

Although the appointment of a case trustee is a rarity in a chapter 11 case, an interested party or the us. uu. The trustee may request the appointment of a trustee or case examiner at any time prior to confirmation in a chapter 11 case. The court, at the request of an interested party or the us. trustee and after notice and hearing, order the appointment of a trustee in the case for cause, including fraud, dishonesty, incompetence, or gross mismanagement, or if such appointment is in the interest of creditors, any stockholders, and other interests of the state. 11 usc § 1104(a). in addition, the us The trustee is required to request the appointment of a trustee if there are reasonable grounds to believe that any of the parties controlling the debtor “engaged in actual fraud, dishonesty, or criminal conduct in the debtor’s management or in the debtor’s financial reporting.” 11 usc § 1104(e). the trustee is appointed by the us. trustee, after consultation with the interested parties and subject to the approval of the court. fed. r. bank pages 2007.1. alternatively, a trustee may be elected in a case if an interested party requests the election of a trustee within 30 days of the court ordering the appointment of a trustee. in that case, the us trustee convenes a meeting of creditors for the purpose of choosing a person to act as trustee in the case. 11 usc § 1104(b).

The case trustee is responsible for the administration of the estate assets, the operation of the debtor’s business, and, if applicable, the filing of a reorganization plan. bankruptcy code section 1106 requires the trustee to file a plan “as soon as possible” or, alternatively, file a report explaining why a plan will not be filed or recommend that the case be converted to another chapter or dismissed . 11 USC § 1106(a)(5).

at the request of an interested party or the us. uu. trustee, the court may terminate the appointment of the trustee and return the debtor-in-possession to the management of the bankruptcy estate at any time prior to confirmation. 11 u.s.c. § 1105.

As discussed above, a trustee is appointed in each case of subchapter v. 11 usc § 1183.

the role of an examiner

The appointment of an examiner in a chapter 11 case is rare. the role of an examiner is generally more limited than that of a trustee. The examiner is authorized to perform the investigative functions of the trustee and must file a statement of any investigation conducted. however, if ordered by the court, an examiner may perform any other duty of a trustee that the court orders the debtor in possession to fail to perform. 11 USC § 1106. Each court has the authority to determine the duties of an examiner in each particular case. In some cases, the examiner may file a plan of reorganization, negotiate or assist the parties to negotiate, or review the debtor’s schedules to determine if any of the claims are miscategorized. sometimes the examiner may be directed to determine whether any proof of claim should be objected to or whether the causes of action have sufficient merit that further legal action should be taken. the examiner cannot subsequently act as a trustee in the case. 11 usc § 321.

Examiners may not be appointed in the cases of subchapter v. 11 usc § 1181(a) (making section 1106 inapplicable in subchapter v cases).

the automatic stay

The automatic stay provides a period of time in which all judgments, collection activities, foreclosures and property liens are stayed and cannot be pursued by creditors on any debt or claim arising prior to the filing of the bankruptcy petition. As with cases under other chapters of the bankruptcy code, a stay of creditors’ actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. 11 usc § 362(a). Filing a petition, however, does not work as a stay for certain types of actions listed in 11 U.S.C. § 362(b). the stay provides a breathing space for the debtor, during which negotiations can take place to try to resolve difficulties in the debtor’s financial situation.

In specific circumstances, the secured creditor may obtain a court order granting relief from the automatic stay. For example, when the debtor has no equity in the property and the property is not needed for an effective reorganization, the secured creditor may seek a court order lifting the stay to allow the creditor to foreclose on the property, sell it, and apply the proceeds to Debt. 11 usc § 362(d).

the bankruptcy code allows certain professionals to make requests for fees during the case. therefore, a trustee, the debtor’s attorney, or any professional person appointed by the court may apply to the court at 120-day intervals for interim relief and reimbursement payments. in very large cases with a lot of legal work, the court may allow more frequent requests. Although professional fees may be paid if authorized by the court, the debtor may not make payments to professional creditors for pre-petition obligations, that is, obligations that arose before the filing of the bankruptcy petition. ordinary ongoing business expenses, however, continue to be paid.

who can submit a plan

The debtor (except for a “small business debtor”) has a period of 120 days during which they have the exclusive right to file a plan. 11 usc § 1121(b). this period of exclusivity can be extended or shortened by the court. but in no case may the period of exclusivity, including all extensions, exceed 18 months. 11 usc § 1121(d). after the exclusivity period has expired, a creditor or the trustee in the case may present a competitive plan. the United States. the trustee cannot present a plan. 11 usc § 307.

A chapter 11 case can continue for many years unless the court, us. trustee, committee, or other party in the acts of interest to ensure timely resolution of the case. the right of creditors to submit a competitive plan provides an incentive for the debtor to submit a plan within the exclusivity period and acts as a deterrent to excessive delay in the case.

Only the debtor can file a plan in a subchapter v case. 11 usc § 1189.

avoidable transfers

The debtor in possession or the trustee, as the case may be, has what is called “avoidance” powers. These powers can be used to undo a transfer of money or property made during a certain period of time prior to the filing of the bankruptcy petition. By preventing a particular transfer of property, the debtor-in-possession can cancel the transaction and force the return or “return” of payments or property, which are then available to pay all creditors. In general, and subject to various exceptions, the power to prevent transfers is effective against transfers made by the debtor within 90 days prior to the filing of the application. but transfers to “insiders” (ie, relatives, general partners, and directors or officers of the debtor) made up to one year before filing may be prevented. 11 usc §§ 101(31), 101(54), 547, 548. In addition, under 11 u.s.c. § 544, the trustee is authorized to prevent transfers under applicable state law, which often provides for longer time periods. circumvention powers prevent unfair prepayments to one creditor at the expense of all other creditors.

cash collateral, adequate protection and working capital

Although the preparation, confirmation, and implementation of a reorganization plan is at the heart of a chapter 11 case, other issues may arise that the debtor in possession must address. The debtor in possession may use, sell, or lease estate property in the ordinary course of business, without prior approval, unless otherwise ordered by the court. 11 usc § 363(c). if the intended sale or use is outside the ordinary course of business, the debtor must obtain permission from the court.

A debtor in possession may not use “cash collateral” without the consent of the secured creditor or the authorization of the court, which must first examine whether the interest of the secured creditor is adequately protected. 11 USC § 363. Section 363 defines “cash collateral” as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, whenever acquired, in which the estate and an entity other than the estate have an interest. includes income, produce, offspring, rents or earnings from property and fees, charges, bills or payments for the use or occupancy of rooms and other public facilities in hotels, motels or other lodging properties subject to a security interest of the creditor.

When “cash collateral” is used (spent), secured creditors are entitled to additional protection under section 363 of the Bankruptcy Code. the debtor in possession must file a motion requesting a court order authorizing the use of the cash collateral. pending the consent of the secured creditor or judicial authorization for the use of the cash collateral by the debtor in possession, the debtor in possession must segregate and account for all cash collateral in his possession. 11 USC § 363(c)(4). a party interested in the property used by the debtor may request that the court prohibit or condition this use to the extent necessary to provide “adequate protection” to the creditor.

Adequate protection may be required to protect the value of the creditor’s interest in the property being used by the debtor in possession. This is especially important when there is a decline in property value. the debtor may make periodic or lump-sum cash payments or provide an additional or replacement lien that will result in the creditor’s property interest being adequately protected. 11 usc § 361.

When a chapter 11 debtor needs working capital, they can obtain it from a lender by giving the lender a court-approved “super priority” over other unsecured creditors or a lien on the estate’s property. 11 usc § 364.

movements

Prior to confirmation of a plan, various activities may take place in a chapter 11 case. The continuing operation of the debtor’s business may result in the filing of a series of contested motions. the most common are those seeking relief from automatic suspension, the use of cash collateral, or to obtain credit. there may also be litigation over unexpired (ie, unfulfilled) contracts and unexpired leases and the assumption or rejection of those unexpired contracts and unexpired leases by the debtor in possession. 11 USC § 365. Delays in formulating, filing, and obtaining confirmation of a plan often prompt creditors to file motions to stay, convert the case to chapter 7, or dismiss the case altogether.

contradictory procedure

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Frequently, the debtor in possession will bring a lawsuit, known as an adversary proceeding, to recover money or property from the estate. Adversarial proceedings may take the form of lien avoidance actions, preference avoidance actions, fraudulent transfer avoidance actions, or post-petition transfer avoidance actions. These procedures are governed by Part VII of the Federal Rules of Bankruptcy Procedure. Sometimes the bankruptcy court may authorize a committee of creditors to take these actions against insiders of the debtor if the plan calls for the committee to do so or if the debtor has refused to do so. Creditors may also initiate adversarial proceedings by filing lawsuits to determine the validity or priority of a lien, revoke an order confirming a plan, determine the discharge of a debt, obtain a court order, or subordinate another creditor’s claim.

claims

the bankruptcy code defines a claim as: (1) a right to payment; (2) or a right to an equitable remedy for breach if the breach gives rise to a right to payment. 11 usc § 101(5). Generally, any creditor whose claim is unscheduled (i.e., not listed by the debtor on the debtor’s listings) or scheduled as disputed, contingent, or unsettled must file a proof of claim (and attach evidence documenting the claim) to be treated as a creditor for purposes of voting on the plan and distribution under the plan. fed. r. bank pages 3003(c)(2). but it is not necessary to file a proof of claim if the creditor’s claim is scheduled (but not listed as disputed, contingent, or unsettled by the debtor) because the debtor’s schedules are considered evidence of the validity and amount of such claims . 11 USC § 1111. If a scheduled creditor elects to file a claim, a properly filed proof of claim supersedes any scheduling of that claim. fed. r. bank pages 3003(c)(4). it is the responsibility of the creditor to determine if the claim is correctly included in the debtor’s lists. The debtor must notify those creditors whose names are added and whose claims are listed as a result of an amendment to the schedules. The notice must also advise such creditors of their right to file proofs of claim and that failure to do so may prevent them from voting on the debtor’s plan of reorganization or participating in any distributions under that plan. When a debtor modifies the list of obligations to add a creditor or change the status of any claim to disputed, contingent, or unliquidated, the debtor must notify any affected entity of the modification. fed. r. bank pages 1009(a).

holders of equity securities

An equity holder is a holder of an equity security of the debtor. Examples of an equity security are a share of stock in a corporation, a limited partner’s interest in a limited partnership, or a right to buy, sell, or subscribe for a stock, security, or interest in a stock in a corporation, or an interest in a corporation. limited society. 11 usc § 101(16), (17). a holder of equity securities may vote on the plan of reorganization and may submit a proof of interest, in lieu of a proof of claim. A proof of interest is considered filed for any interest on the debtor’s schedules, unless it is recorded as disputed, contingent, or unliquidated. 11 usc § 1111. a holder of equity securities whose interest is unscheduled or scheduled as disputed, contingent, or unliquidated must submit proof of interest to be treated as a creditor for purposes of voting on the plan and distribution pursuant to same. fed. r. bank pages 3003(c)(2). a properly filed proof of interest supersedes any scheduling of that interest. fed. r. bank pages 3003(c)(4). In general, most of the provisions that apply to proofs of claim, as discussed above, also apply to proofs of interest.

conversion or dismissal

A debtor in a chapter 11 case has a one-time absolute right to convert the chapter 11 case to a chapter 7 case unless: (1) the debtor is not a debtor in possession; (2) the case was originally filed as an involuntary case under chapter 11; or (3) the case became a chapter 11 case without the debtor requesting it. 11 usc § 1112(a). A debtor in a chapter 11 case does not have an absolute right to have the case dismissed on demand.

An interested party may file a motion to dismiss or convert a chapter 11 case to a chapter 7 case “for cause.” generally, if cause is established after notice and hearing, the court must convert or dismiss the case (whatever is in the best interest of the creditors and the estate) unless it specifically determines that the conversion or dismissal requested is not in the best interest of the creditors and the estate. 11 usc § 1112(b). Alternatively, the court may decide that the appointment of a chapter 11 trustee or examiner is in the best interest of the creditors and the estate. 11 USC § 1104(a)(3). Section 1112(b)(4) of the Bankruptcy Code sets forth numerous examples of causes that would support discharge or conversion. for example, the moving party may establish cause by showing that there is a substantial or continuing loss of the estate and the absence of a reasonable probability of rehabilitation; serious mismanagement of assets; failure to maintain insurance that represents a risk to property or the public; or unauthorized use of cash collateral that is substantially detrimental to a creditor.

cause for dismissal or conversion also includes the unjustified breach of the information and presentation requirements; not attending the meeting of creditors or attending an examination without just cause; failure to provide timely information to the us uu. trustee; and failure to timely pay post-petition taxes or timely file post-petition tax returns. r. bank pages 2004. further failing to file a disclosure statement or file and confirm a plan within the time set by the bankruptcy code or court order; inability to carry out a plan; denial or revocation of confirmation; failure to consummate a confirmed plan represents “cause” for dismissal under the statute. in an individual case, the debtor’s failure to pay post-petition child support obligations constitutes “cause” for dismissal or conversion.

Section 1112(c) of the bankruptcy code provides an important exception to the conversion process in a chapter 11 case. Under this provision, the court is prohibited from converting a case involving a farmer or a charity to a liquidation case under chapter 7 unless the debt or request conversion.

the disclosure statement

Generally, the debtor (or any plan proponent) must file and obtain court approval of a written disclosure statement before the plan of reorganization can be voted on. the disclosure statement must provide “adequate information” about the debtor’s affairs to enable the owner of a right 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 adequate information and that a separate disclosure statement is not necessary. 11 usc § 1125(f). A disclosure statement is not required in a subchapter V case unless otherwise ordered by the court for cause. 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. generally, acceptance or rejection of a plan cannot be requested until the court has first approved the disclosure statement in writing. 11 usc § 1125(b). An exception to this rule exists if the party’s initial application occurred before the bankruptcy filing, as would be the case with so-called “packaged” bankruptcy plans (i.e., where the debtor negotiates a plan with large groups of creditors before filing). to file for bankruptcy). ). Continued solicitation after submission of such parties is not prohibited. After the court approves the disclosure statement, the debtor or plan proponent can begin to request acceptance of the plan, and creditors can also request rejection of the plan.

Upon approval of a disclosure statement, the plan proponent must mail the following to the us. uu. trustee and all creditors and equity holders: (1) the plan, or a court-approved summary of the plan; (2) the court-approved disclosure statement; (3) notice of the time within which plan acceptances and rejections may be submitted; and (4) any other information the court may order, including any court opinion approving the disclosure statement or a court-approved summary of the opinion. fed. r. bank pages 3017(d). in addition, the debtor must send by mail to the creditors and holders of equity securities with the right to vote on the plan or plans: (1) notice of the time set for filing objections; (2) notice of the date and time of the plan confirmation hearing; and (3) a ballot to accept or reject the plan and, if applicable, a designation for creditors to identify their preference among the competing plans. ID. but in a small business case, if a disclosure statement is filed, the court may conditionally approve a disclosure statement subject to final approval after notice and a combined disclosure statement/plan confirmation hearing. 11 usc § 1125(f).

acceptance of the sanitation plan

As noted above, only the debtor can file a plan of reorganization during the first 120-day period after the petition is filed (or after the issuance of the relief order, if an involuntary petition was filed). the court may grant the extension of this exclusive period up to 18 months after the date of the petition. In addition, the debtor has 180 days after the date of petition or entry of the relief order to obtain acceptances from his plan. 11 USC § 1121. The court may extend (up to 20 months) or reduce this exclusive acceptance period for good cause. 11 usc § 1121(d). In practice, debtors generally request extensions of both the plan filing and the plan acceptance deadlines at the same time, so that any order sought from the court allows the debtor two months to seek acceptances after filing. a plan before any competing plan can be submitted.

If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties interested in a case, such as the creditors’ committee or a creditor, may file a plan. said plan may compete with a plan presented by another interested party or by the debtor. if a trustee is appointed, the trustee must file a plan, a report explaining why the trustee will not file a plan, or a recommendation for conversion or dismissal of the case. 11 USC § 1106(a)(5). the proponent of a plan is subject to the same requirements as the debtor with respect to disclosure and application.

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 advantageous 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 liquidation. case of chapter 7.

Bankruptcy Code section 1123(a) 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 designate classes of claims and interests for treatment under the reorganization. Typically, a plan will classify rights holders as secured creditors, priority unsecured creditors, general unsecured creditors, and equity security holders.

under section 1126(c) of the bankruptcy code, an entire class of claims is considered to accept a plan if the plan is accepted by creditors who own at least two-thirds in amount and more than one-half in amount of the claims allowed in the class. under section 1129(a)(10), if there are classes of impaired claims, the court cannot confirm a plan unless it has been accepted by at least one class of uninitiated who have impaired claims (i.e., claims that will not be paid in full or in which any legal, equitable or contractual right is altered). furthermore, under section 1126(f), unaffected credit holders are deemed to have accepted the plan.

under section 1127(a) of the bankruptcy code, the plan proponent can modify the plan at any time before confirmation, but the modified plan must meet all the requirements of chapter 11. when there is a proposed modification after it has been voted on. carried out, and the court determines after a hearing that the proposed modification does not adversely affect the treatment of any creditor who has not agreed to the modification in writing, the modification is deemed to have been accepted by all creditors who previously agreed to the plan . fed. r. bank pages 3019. If the proposed amendment is found to have an adverse effect on the claims of non-consenting creditors, then another vote must be taken.

Because more than one plan may be submitted to creditors for approval, each proposed plan and amendment must be dated and identified with the name of the entity or entities submitting the plan or amendment. fed. r. bank pages 3016(b). When competing plans are filed that meet the requirements for confirmation, the court must consider the preferences of creditors and equity holders in determining which plan to confirm.

any interested party can file an objection to the confirmation of a plan. the bankruptcy code requires the court, after notice, to hold a hearing on the confirmation of a plan. if no objection to confirmation has been timely filed, the bankruptcy code allows the court to determine whether the plan has been proposed in good faith and in accordance with law. fed. r. bank pages 3020(b)(2). Before confirmation can be granted, the court must be satisfied that all other confirmation requirements set forth in Bankruptcy Code section 1129 have been met, even in the absence of objections. To confirm 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 the plan proponent comply with the bankruptcy code. to satisfy the feasibility requirement, the court must find that confirmation of the plan is not likely to be followed by liquidation (unless the plan is a plan of liquidation) or the need for further financial reorganization.

the download

Section 1141(d)(1) generally states that confirmation of a plan releases the debtor from any debt that arose prior to the date of confirmation. once the plan is confirmed, the debtor is obligated to make the plan payments and is subject to the provisions of the reorganization plan. The confirmed plan creates new contractual rights, superseding or superseding pre-bankruptcy contracts.

There are, of course, exceptions to the general rule that an order confirming a plan operates as a download. Confirmation of a plan of reorganization releases any type of debtor (corporation, partnership, or individual) from most types of pre-petition debt. however, it does not relieve an individual debtor of any debt that Section 523 of the Bankruptcy Code has made unenforceable. (1) further, except in limited circumstances, a discharge is not available to an individual debtor unless and until all payments under the plan have been made. 11 USC § 1141(d)(5). confirmation does not release the debtor if the plan is liquidation, as opposed to reorganization, unless the debtor is a natural person. when the debtor is an individual, confirmation of a settlement plan will result in a discharge (after plan payments are made) unless there are grounds to deny the debtor a discharge if the case were proceeding under chapter 7 instead. place of chapter 11. 11 u.s.c. §§ 727(a), 1141(d).

modification after plan confirmation

At any time after confirmation and prior to “substantial consummation” of a plan, a plan proponent may modify the plan if the modified plan meets certain requirements of the bankruptcy code. 11 USC § 1127(b), 1193(b). this should be distinguished from modification prior to plan confirmation. a modified post-commit plan does not automatically become the plan. a post-confirmation modified plan in a chapter 11 case becomes the plan only “if circumstances warrant such modification” and the court, after notice and hearing, confirms the modified plan. if the debtor is an individual, the plan may be modified after confirmation at the request of the debtor, the trustee, the u.s. trustee, or the holder of an unsecured right allowed to make adjustments to payments due under the plan. 11 usc § 1127(e).

post-commit management

Notwithstanding the entry of the confirmation order, the court has the authority to issue any other order necessary to administer the estate. fed. r. bank pages 3020(d). this authority would include post-confirmation determination of objections to claims or adversarial proceedings, which must be resolved before a plan can be fully consummated. Bankruptcy Code sections 1106(a)(7) and 1107(a) require a debtor-in-possession or trustee to report on progress made in implementing a plan after confirmation. A trustee or debtor in possession of chapter 11 has a number of responsibilities to fulfill after confirmation, including consummation of the plan, reporting consummation status, and requesting a final decree.

revocation of the confirmation order

the revocation of the confirmation order is an annulment or cancellation of the confirmation of a plan. a request for revocation of confirmation, if made, must be made by an interested party within 180 days of confirmation. the court, after notice and hearing, may revoke a confirmation order “if and only if the [confirmation] order was obtained by fraud.” 11 usc § 1144.

See also: Walt Disney Studios Closes Out 2019 with Record 11.1191B Globally, 13.1517B Including Fox Titles – Boxoffice

the final decree

the revocation of the confirmation order is an annulment or cancellation of the confirmation of a plan. a request for revocation of confirmation, if made, must be made by an interested party within 180 days of confirmation. the court, after notice and hearing, may revoke a confirmation order “if and only if the [confirmation] order was obtained by fraud.” 11 usc § 1144.

See also: Walt Disney Studios Closes Out 2019 with Record 11.1191B Globally, 13.1517B Including Fox Titles – Boxoffice

notes

  1. Unpaid debts include debts for alimony and child support, certain taxes, debts for certain educational benefits, overpayments or loans made or guaranteed by a government unit, debts for willful and malicious damage by the debtor to another entity or to another entity’s property, 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 for certain criminal restitution orders. 11 u.s.c. § 523(a). The debtor will remain liable for these types of debts to the extent they are not paid in a chapter 11 case. Debts for money or property obtained under false pretenses, debts for fraud or embezzlement acting as a fiduciary, and debts for intentional and malicious damage of the debtor to another entity or to another entity’s property will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable. 11 USC § 523(c); fed. r. bank pages 4007(c).

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