What is a “prepackaged bankruptcy”?

A “prepackaged bankruptcy” is a form of Chapter 11 Bankruptcy that is agreed upon by a debtor and its creditors before a bankruptcy petition is filed. This type of bankruptcy is used when a debtor and its creditors are in agreement about how the debtor’s assets will be divided or restructured. Rather than going through a lengthy court process, the agreement is presented as a single document to a bankruptcy court. Because the agreement between the debtor and its creditors is already in place before filing the bankruptcy petition, a “prepackaged bankruptcy” is considered more efficient and often less expensive than regular Chapter 11 bankruptcy proceedings. The agreement is often approved by the bankruptcy court within a few weeks, as opposed to the months-long legal processes that can occur with regular Chapter 11 proceedings. In Mississippi, a “prepackaged bankruptcy” must be filed in the same court as a regular Chapter 11 bankruptcy petition. The debtor must have the support of a majority of its creditors in order for the agreement to be approved. The “prepackaged bankruptcy” option is usually chosen by debtors who have limited assets and want to restructure their debt quickly. It is not always possible to work out an agreement, and even if an agreement is reached, the terms can be subject to scrutiny by the bankruptcy court.

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What is a “prepackaged bankruptcy”?

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