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

A “liquidating plan” in a Chapter 11 bankruptcy is a plan that may be proposed by the debtor in order to pay creditors while also allowing the debtor to retain ownership of some or all of their property. In a Chapter 11 bankruptcy, a plan of liquidation typically requires the sale of some or all of the debtor’s assets to generate money to pay creditors. This money is then used to pay the creditors in one lump sum or in payments similar to a debt repayment plan. The proceeds of the liquidating plan are paid to the creditors in order of priority. In Virginia, the priority of the creditors is set by the Bankruptcy Code and includes secured creditors, unsecured priority creditors, general unsecured creditors, and administrative expenses. The value of the property is determined and creditors are paid in that order, with secured creditors and priority creditors as the first to receive payments. The most important part of a liquidating plan is that it must be accepted by at least three-fourths of the creditors in order for the plan to be approved. If the creditors do not agree to the plan, it is up to the court to make changes to the plan or reject it completely. If the court does approve the plan, the debtor must comply with the terms and conditions set in the plan to complete the bankruptcy process.

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

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