Reorganization Plan
After filing a Chapter 11 bankruptcy case a business has 120
days to create and file a voluntary reorganization plan and provide disclosure
statements to creditors. Creditors evaluate, approve or reject the plan. The
bankruptcy court confirms or rejects the plan. The reorganization plan allows
the business to pay portions of debts, discharge some debts, terminate
contracts and recover assets. The plan details the process for the business to
adjust operations, reduce debt and return to profitable operations. Small
business cases are handled differently than bankruptcy cases for larger
business, including additional court oversight and attention to the
reorganization plan and business operations.
Confirmed Plans
Confirmed reorganization plans are legally binding for
creditors and the debtor that has filed bankruptcy. A confirmed plan discharges
debt that existed before the confirmation date. The plan classifies debtors as
secured creditors, equity security holders and general or prioritized unsecured
creditors. The plan includes a detailed payment plan for repayment of debts
and, if approved, liquidation of assets. Reorganization plans may be adjusted
or replaced with new plans after voting by creditors and approval of the
bankruptcy court. The business must adhere to payment schedules in the
reorganization plan.
Pre-petition Debts
Bankruptcy law prohibits businesses in Chapter 11
reorganization to pay for services or goods the business received before the
filing date for the bankruptcy case. Pre-petition invoices cannot be paid until
the court approves a reorganization plan. Post-petition invoices for purchases
made after the filing of the bankruptcy are paid normally and receive priority
over pre-petition debts. The reorganization plan details how much of
pre-petition debts are paid and when the debts are paid.
Non-discharged Debts
Bankruptcy does not allow the discharge of some of the
business’ debts, including certain taxes, child support, alimony,
government-guaranteed education funds, some orders for restitution and debts
stemming from personal and property damage of a malicious nature or involving
intoxication.
