How to File a Successful Chapter 11 Bankruptcy Plan
When considering bankruptcy, businesses face choices similar to those of individuals. A Chapter 7 filing by a business liquidates assets to pay creditors. A Chapter 11 business bankruptcy is similar to an individual Chapter 13 by requiring a reorganization plan to keep the company viable during restructuring. Any business, or individual, can file Chapter 11, although its complexity usually limits filings to larger businesses.
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Instructions
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File the bankruptcy petition. Filing the petition with the appropriate bankruptcy court establishes certain legal conditions and triggers several processes, including automatic stays that temporarily protect your business from creditors. Along with the petition, your company's assets and liabilities must be detailed, including leases, contracts and other obligations. At this point in an individual Chapter 13 proceeding a trustee would be appointed to oversee the case. Most businesses, however, are allowed to continue operating independently.
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Create a re-organization plan within 120 days from the date of petition filing (or 180 days if you've secured the acceptance of all creditors). After that, creditors can submit competing plans. Your business continues to operate during the 120-day period, although most--if not all--profits are funneled to pay creditors. Your plan must contain specific provisions, including:
Claim classification. Usually three or four classes are used to designate secured claims, unsecured claims and all other claims. According to Lawdog Bankruptcy, claims can be lumped into the same classifications, "only if such claim or interest is substantially similar to the other claims or interests of the same class."
Method of payment or treatment. For each claim in each class, you must explain in detail how you plan to pay.
Implementation details. This plan should include a stipulation for the election of directors--for negotiation purposes--that mirror those of the creditors.
Addressing of impaired classes. Impaired classes are claims that will not be treated as other classes regarding full, or any, payment.
Inclusion of permissible provisions. These provisions can set out plans to impair any class, reject existing contracts and leases, suggest asset liquidation, or make provisions for other steps allowable under bankruptcy law. These provisions are allowable as long as they don't conflict with plans already outlined.
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Conduct an approval hearing among the classes of creditors. Company stockholders may or may not be involved in voting, although a judge may ignore stock-voter objections if he deems the plan fair and equitable and if the plan receives approval of the creditor classes. Plan rejection at this point may result in alternate plan submission by creditors, but the judge has the final say. A plan approved by the committee of the largest or secured creditors has the best chance of passing muster with a judge.
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Confirm the plan. This court hearing weighs any objections to the plan and includes the judge's ruling. If the plan has been approved by creditors and the court finds the plan fair and feasible, reorganization will be confirmed. Other plans may be considered at this point, or the judge may proclaim none of the plans feasible and submit the case to Chapter 7 liquidation proceedings.
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Tips & Warnings
Due to cost and complexity, small businesses usually file a personal Chapter 13 petition rather than Chapter 11.
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