What is a “modification of debt” in a Chapter 11 bankruptcy?

A “modification of debt” in a Chapter 11 bankruptcy is a way for the debtor to reduce or change one or more of the terms of a debt they owe. This usually involves changing the amount or timing of payments, reducing interest, or even deferring or forgiving the debt altogether. Under Chapter 11, the debtor proposes a reorganization plan to the creditors that includes a modification of debt. The creditors then must approve the plan before it will be accepted by the court. Once the plan is approved, it creates a “binding contract” between the debtor and creditors and can’t be changed without the consent of both parties. This means that the debt holder (creditor) cannot change the agreed upon terms without the debtor’s permission, and the debtor can’t change the terms without first obtaining consent from the creditor. Modification of debt can be an effective way for a debtor to manage their financial obligations in a Chapter 11 bankruptcy. It can reduce the amount of money required to pay off the debt and put the debtor on a more manageable repayment plan. This can help the debtor become financially stable and avoid having to declare bankruptcy again in the future.

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What is a “modification of debt” in a Chapter 11 bankruptcy?

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