Plan of Reorganization in Chapter 11 Bankruptcy: An Overview

When a company wants to restructure its debts, while maintaining business operations, often times it will file for Chapter 11 Bankruptcy in order to establish a plan of paying off creditors. A crucial part of the filing process is submitting a Plan of Reorganization.

What is a Plan of Reorganization?

A plan of reorganization is a comprehensive document, prepared on behalf of a company filing for Chapter 11 Bankruptcy, which outlines how a business plans to repay outstanding debts. This plan outlines exactly how the company plans to repay creditors over a specific period of time.

What are the Elements of a Plan of Reorganization?

The plan of reorganization must detail exactly how each class of creditor will be repaid. The four common creditor classifications are as follows:

  • Secured Creditors
  • Priority Unsecured Creditors
  • General Unsecured Creditors
  • Equity Security Holders

When do you file your Plan of Reorganization?

You have 120 days after filing your motion for relief to file your plan of reorganization (this can be extended by up to 18 months if the court approves). After the 120 day exclusivity period expires, creditors or a court appointed trustee can file competing plans of reorganization.

What happens after you file your Plan of Reorganization?

Once you file your plan of reorganization, impaired creditors (those creditors who will receive less than their full claim value) have to vote for or against your plan. Creditors may also file a competing plan of reorganization. The court will then weigh each proposal against the best interests of creditors and stakeholders.

When is the Plan of Reorganization confirmed?

As long as there are no objections to your plan of reorganization, a confirmation hearing will be held. If the court decides that your presented plan is feasible, equitable, and in the best interest of creditors and stakeholders, they will confirm the plan of reorganization.