Chapter 11 Bankruptcy in a Nutshell

Chapter 11 Bankruptcy in a Nutshell

Bankruptcy LawChapter 11 Bankruptcy – Chapter 11 Bankruptcy in a Nutshell

Arizona Chapter 11 Bankruptcy in a Nutshell

The purpose of Chapter 11 is to file a Plan that explains how you will restructure your business and the steps you will take to implement the Plan. It explains how much revenue you expect to bring in, when the funds will be available, and more importantly, what amounts under what terms your creditors will be paid. The Plan must be realistic. Preparing your Plan involves letting your creditors know about the problems you are having. This type of communication usually best done when it is accompanied by a Disclosure Statement.

Click here for a sample form of a Disclosure Statement from the Arizona Bankruptcy Court website, then go to Chapter 11 Disclosure Statement

The Plan needs to divide all the business debt into classes of claims and spell out in detail how much and when each class will be paid. Secured and unsecured creditors will be treated differently.

Click here for a sample form of a Chapter 11 Plan from the Arizona Bankruptcy Court website, then go to Chapter 11 Plan Form

There may also be secured creditors whose claims are under secured. Some of these classes made up of unsecured creditors may be negatively impacted by your Plan. These negatively impacted classes are called “impaired classes.” To succeed, your Plan needs to be accepted by your creditors, unless it is confirmed by the court even though some of the impaired classes may reject it. This type of confirmation is called a “cram down.” To succeed in obtaining confirmation based on a cram down, your Plan will need to be accepted by at least one impaired class of unsecured creditors.

Once the Plan is confirmed by the Court, you will need to implement the Plan, and then, several years later, when the terms of the Plan have been completed and the payments and assets have been distributed to creditors, the remaining debts will be discharged and the case will be closed by the court. In the case of a Chapter 11 in which the debtor is an individual, some debts such as child support will not be discharged. However, if you cannot complete the terms of your Plan and your business continues to lose money, you have a right to convert your Chapter 11 case to a Chapter 7 liquidation.

Click here for a discussion of Business Chapter 7

This is a very general and simplified explanation of Chapter 11. The procedure is more complicated. This explanation is not intended as legal advice. The intent is to familiarize the business owner with the basics of how a Chapter 11 works, and to provide a basic big picture understanding.

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