Bankruptcy Reorganization Plans

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What Are Bankruptcy Reorganization Plans?

Bankruptcy Reorganization Plans are used in Chapter 11 Bankruptcy cases. Chapter 11 bankruptcy is also known as “reorganization bankruptcy.” It’s a type of business bankruptcy filing that allows the business some time to reorganization their finances and repay their debts to creditors. The bankruptcy court may require that some debts be paid in full, while others can be paid in percentage.

Thus, an integral part of any Chapter 11 bankruptcy filing is the reorganization plan. The business needs to create this plan in order to manage how they will pay their debts off. The plan must be presented to the court, and will undergo a detailed analysis before it gets approved. 

What Are Some Issues to Address in a Bankruptcy Reorganization Plan?

A bankruptcy reorganization plan should be clearly written and well-organized.  Preferably, it should be written by a lawyer and/or someone who is well-versed in bankruptcy laws. "The plan” should address the following issues:

Each bankruptcy reorganization plan will be different depending on the type of business involved, as well as the nature of the business’ debts. For example, one type of reorganization plan may involve several non-dischargeable debts. In that case, the plan needs to focus on how the debts will be repaid. 

For other businesses, a reorganization plan may focus more on distributions of business assets. It all depends on each individual case. That’s why it’s important to work closely with a lawyer as well as key members of the business when creating a bankruptcy reorganization plan.

What If a Bankruptcy Reorganization Plan Is Violated?

First of all, a bankruptcy reorganization plan must be approved by the court before it can be effective and legally enforceable. In other words, the court won’t allow the business to claim Chapter 11 bankruptcy unless they have a valid reorganization plan. Once the plan gets approved, it becomes enforceable under the law. Violations reorganization plans can lead to various legal consequences.

For example, if the debtor business doesn’t follow through on their debt repayments, the creditor may be allowed to levy on the business’ assets and property. They may be able to obtain a lien on business property, in order to satisfy the debt payments.

Creditors can also violate reorganization plans. For example, if the creditor attempts to collect more than what’s agreed upon in the bankruptcy reorganization plan, the business can cite the bankruptcy reorganization plan, and won’t have to pay more than what’s stated in the plan. Thus, many legal disputes and lawsuits can be avoided through proper negotiating between the creditor and debtor parties as the plan is being created.

Do I Need a Lawyer for Assistance With a Bankruptcy Reorganization Plan?

It’s best if a bankruptcy reorganization plan is drafted and reviewed by a bankruptcy lawyer. This will help to avoid errors and misunderstandings that can lead to disputes in the future. The plan also needs to pass several analyses by the court, which can be complicated in some instances. Thus, a lawyer can help review the plan to ensure it gets approved. Your lawyer can also represent you in court in the event that a lawsuit arises over the reorganization plan.

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Last Modified: 02-25-2014 11:28 AM PST

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