The structure of a Chapter 11 bankruptcy involves several key components and steps:
Filing a Petition:
The process begins with the filing of a petition in the bankruptcy court where the debtor is a resident. This can be a voluntary petition filed by the debtor or an involuntary petition filed by creditors. 26
Debtor in Possession:
Upon filing, the debtor typically becomes a "debtor in possession" and retains control over the business operations and assets. This means the debtor continues to operate the business but under court supervision. 246
Disclosure Statement and Plan of Reorganization:
The debtor must file a disclosure statement and a plan of reorganization with the court. The disclosure statement provides detailed information about the debtor's assets, liabilities, and business affairs, while the plan outlines how each class of claims will be treated. 246
Classification of Claims:
The plan of reorganization must classify claims and specify how each class will be treated. Creditors with impaired claims vote on the plan, and those with unimpaired claims are deemed to accept the plan. 246
Voting and Confirmation:
The plan is confirmed by the court if it is accepted by creditors with at least two-thirds in amount and at least one-half of the number of allowed claims in the class. At least one class of creditors holding impaired claims must approve the plan. 246
Court Oversight:
Throughout the process, the court oversees the debtor's actions, including the sale of assets, entering into contracts, and borrowing new money. The debtor must obtain court approval for significant transactions outside the ordinary course of business. 246
Trustee's Role:
In some cases, a trustee may be appointed to supervise the debtor in possession and ensure compliance with reporting requirements. The trustee can file a motion to dismiss or convert the case if the debtor fails to comply. 246
Reorganization and Discharge:
Once the plan is confirmed and fulfilled, the debtor is discharged from debts, and creditors cannot pursue further claims. The business emerges with a restructured debt structure, allowing it to continue operations. 246
This structure allows businesses to reorganize their debts while continuing to operate, providing a pathway to financial recovery.
