The exclusivity period in bankruptcy refers to the period of time in a Chapter 11 bankruptcy for the debtor to file a plan of reorganization. Specifically, this is the period of time within which the debtor has the exclusive right to file a plan. Once this exclusive period passes, a creditor or the trustee may file their own plan of reorganization. The exclusivity provision of the Bankruptcy Code promotes the efficient resolution of Chapter 11 cases.
In a Chapter 11 bankruptcy case, the debtor has 120 days from the entry of the order for relief to file a plan of reorganization. The order relief is granted upon the filing of the bankruptcy case. The debtor also has 180 days from the filing of the bankruptcy case to obtain approval of the plan of reorganization from the creditors and the court.
A Chapter 11 debtor is not absolutely bound by the 120 day and 180 day exclusivity requirements. The debtor may seek extensions of the exclusivity periods by filing a motion with the court. Within its motion, the debtor must establish sufficient cause for extension, such as progress in creating a plan and negotiations with creditors. An important restriction on seeking extensions of exclusivity is that you must file the motion seeking relief within the exclusivity period; if you file an extension outside the 120 or 180 day periods, the courts will typically reject it.
Exceptions to Extension
A Chapter 11 debtor is subject to certain statutory limits in seeking extensions of the exclusivity period. These limits prevent the debtor from holding up the Chapter 11 process, and a debtor cannot seek an extension of exclusivity of the 120 day period beyond 18 months after the filing of the case. A debtor is also barred from seeking an exclusivity extension of the 180 day period beyond 20 months after the filing of the case.
If the Chapter 11 debtor loses exclusivity, a creditor or the bankruptcy trustee may file a plan of reorganization. This fact, however, does not preclude the debtor from still filing his own plan of reorganization. Nevertheless, the debtor will have to compete with the plan filed by another entity, and is typically not in the best interest of the debtor. Oftentimes, the debtor will wish to negotiate with any creditor seeking to file a plan of reorganization to see if the creditor will hold off on filing the plan.