How are creditors paid in a Chapter 11 bankruptcy?

In a Chapter 11 bankruptcy in New York, creditors are paid through a process known as a “distribution plan.” This distribution plan is proposed by the debtor (the person or entity filing for bankruptcy) and is then approved by a judge following a hearing. The debtor will typically use all of their available resources to pay off the creditors. This can include liquidated assets, such as property, or money earned from the sale of tangible possessions. The distribution plan aims to pay off all creditors in a fair and equitable manner, with each creditor receiving a share of the available funds based on the percentage of debt that they are owed. Creditors are typically divided into different classes, such as secured creditors and priority creditors, and each class is paid off in turn. Secured creditors, who have been granted a lien on some of the debtor’s property, are paid off first. Priority creditors, such as the IRS, are the next to be paid. Lastly, unsecured creditors are paid off with whatever funds are left. In cases where the debtor is unable to pay off all of their creditors, the distribution plan will also include a “cram-down.” This allows the debtor to pay off some of their creditors with a lower amount than what is owed. The creditors must agree to the “cram-down” for it to be approved by the court. Once the court approves the distribution plan, the debtor has three years to pay off their creditors.

Related FAQs

How are creditors paid in a Chapter 11 bankruptcy?

Related FAQs

Related Blog Posts