What is a “prepackaged bankruptcy”?

A "prepackaged bankruptcy" is a form of bankruptcy where the debtor has already proposed a plan to creditors to reduce the amount of the debt owed. This plan is usually agreed upon before filing for bankruptcy. The debtor and creditors will have already agreed on how to divide up the payments and other details before the process begins. In North Dakota, a prepackaged bankruptcy is also known as a Chapter 11 bankruptcy. This type of bankruptcy is designed to allow financially troubled businesses or individuals to continue to operate while they reorganize their financial affairs. The court will supervise the process to ensure that creditors are treated fairly, and that the debtor is paying the amount of debt they can realistically afford. When the debtor makes a plan to repay the debt before filing their case, they are known as a “debtor-in-possession” and can continue to run their business. This allows the debtor to use the income they generate to pay off the creditors, rather than having to liquidate the business to pay off the debts. A prepackaged bankruptcy also limits the amount of paperwork, costs, and time involved. It can be a much less expensive process than filing a full Chapter 11 bankruptcy and can help a business stay afloat during difficult financial times.

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What is a “prepackaged bankruptcy”?

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