What is a “plan of reorganization” in a Chapter 11 bankruptcy?

A plan of reorganization in a Chapter 11 bankruptcy is a written document that outlines how a business debtor will manage and pay its debts over a period of time. The plan is essentially a repayment plan and it must be approved by the court. If the plan is approved, the debtor must make payments to creditors according to the plan. A plan of reorganization typically involves a detailed analysis of the debtor’s assets, liabilities, income, and expenses. It will also consider any available exemptions, meaning what assets the debtor is allowed to keep so that he or she can continue to operate his or her business. The plan will typically require the debtor to pay back some or all of the debt, perhaps by selling some assets, or giving up some of the equity in the business. In addition to outlining how the debtor will repay creditors, a plan of reorganization might also include provisions to modify loans or reduce the amount of debt owed. The court will approve the plan of reorganization if it is fair and equitable, meaning it should not give unfair advantages to one creditor over another, and it should be feasible. Once a plan of reorganization is approved by the court, the debtor must abide by the terms of the plan and is subject to court oversight. The debtor must make all payments on time according to the plan in order to get debt relief. If the debtor fails to make payments as outlined, the court may dismiss the case and creditors may pursue collection actions.

What is a “plan of reorganization” in a Chapter 11 bankruptcy?

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