What is a “liquidating plan” in a Chapter 11 bankruptcy?

A liquidating plan is a plan under Chapter 11 bankruptcy law which allows a debtor to monetize all or some of their assets in order to pay back creditors. This type of plan is typically used to trade or dispose of assets in order to provide the debtor with a larger rate of return on their investments. In California, a liquidating plan may allow the debtor to pay all of their liabilities in full or partially, depending on the amount of available liquid assets. The primary purpose of a liquidating plan is to convert the debtor’s assets into cash or other easily convertible forms of property. The liquidation process may involve up to five steps: identifying and valuing the debtor’s assets; disposing of them; distributing funds to creditors in the order of priority established by the Bankruptcy Code; and terminating the liquidation plan. The liquidation plan must be approved by the court. In California, the debtor is typically given a deadline to submit their liquidating plan. If their plan does not meet the requirements of the Bankruptcy Code, the court may reject it. Once the liquidation plan is approved, the debtor must follow the terms of the plan and make payments to creditors according to the specified schedule. Liquidating plans can also provide for the reorganization of a debtor’s business operations. Liquidating plans are an important part of the Chapter 11 bankruptcy process in California. These plans can provide creditors with the best available repayment rates and give debtors the chance to pay off their liabilities without having to declare bankruptcy and face the associated stigma.

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What is a “liquidating plan” in a Chapter 11 bankruptcy?

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