What is a “prepackaged bankruptcy”?

A “prepackaged bankruptcy” is a type of Chapter 11 bankruptcy that is designed to be completed more quickly and efficiently than other types of bankruptcy. In a prepackaged bankruptcy, the debtor presents the bankruptcy court with a prepackage plan that has already been agreed upon by the debtor and its creditors. This plan outlines how the debtor will reorganize, such as restructuring its debt, and how creditors will be repaid. Prepackaged bankruptcies are generally quicker than traditional Chapter 11 bankruptcies because there is significantly less litigation involved. Once the prepackaged plan is approved by the bankruptcy court, all affected parties can move forward with the reorganization. This is in comparison to traditional Chapter 11 bankruptcies, where creditors may dispute the terms of the plan and prolong the reorganization process. In South Carolina, a prepackaged bankruptcy is known as a "pre-negotiated" bankruptcy, which is similar to a prepackaged bankruptcy, but with a few different rules. Pre-negotiated bankruptcies must be approved by at least two thirds of the creditor’s claimants and cannot include any plan changes from the original proposed plan. Prepackaged and pre-negotiated bankruptcies can be a quicker and less expensive alternative to traditional Chapter 11 bankruptcies. However, the debtor must still be able to prove that it can reorganize successfully, and the creditors must be able to agree on the proposed reorganization plan. As such, prepackaged and pre-negotiated bankruptcies may not be the right type of bankruptcy for all debtors.

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What is a “prepackaged bankruptcy”?

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