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

A plan of reorganization in a Chapter 11 bankruptcy is an agreement between the debtor and the creditors that outlines the terms that must be met in order for the debtor to pay back the debt they owe creditors. The plan may allow the debtor to pay less than the full amount of the debt owed, or it could require the debtor to pay the full amount over a longer period of time. It may also involve other agreements such as transferring ownership of certain assets in order to pay off creditors or selling certain assets to generate cash to pay off debt. Depending on the specifics of the plan, the court may have to approve the plan before it can be implemented. Once the plan is approved, the debtor must adhere to the rules and conditions of the agreement or else the plan is null and void. The plan of reorganization typically includes specific commitments from the creditor and debtor that must be met in order for the plan to be successful. During the plan of reorganization, the debtor must make timely payments to creditors in order to stay in compliance with the plan. The goal of the plan of reorganization is to allow the debtor to pay back the debt owed to creditors over a period of time, rather than having to pay back the full amount immediately. Generally, the debtor must prove to the court that the plan is feasible and will allow creditors to receive a portion of what is due to them. After all the debt is paid off, the debtor is discharged from liability and can begin anew.

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

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