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What is a 'plan of reorganization' in a Chapter 11 bankruptcy?

Many Kentucky business owners who are facing mounting business debts are aware that the federal Bankruptcy Act provides them a haven in which their debt can be reorganized, thereby giving the business a fresh start. This post will provide an overview of one of the most important parts of a Chapter 11 bankruptcy: the plan of reorganization.

A business that wishes to take advantage of Chapter 11 must file a petition with the bankruptcy court. The debtor must also file schedules that list assets and liabilities, individual debts to creditors and recent profit and loss statements. The debtor must also file a written plan of reorganization that provides information about the company and its financial condition that will enable creditors to make a reasonable judgment about the viability of the company's reorganization plan.

The reorganization plan must contain a classification of claims (debts that it owes,) and must specify how each class of claims will be treated in the reorganization. All creditors whose claims are "impaired," i.e., will not be paid in full according to the plan, are given the chance to vote on the plan. The court then conducts a hearing on the plan to determine whether it is fair and whether it should be confirmed. Parties having an interest in the bankrupt estate (the company's assets) may appear at the hearing and object or support the plan. The Bankruptcy Code sets forth a number of conditions that must be satisfied by the debtor before a reorganization plan can be approved.

Any business owner who is wondering about the wisdom of filing a bankruptcy petition may wish to consult an experienced bankruptcy attorney. A knowledgeable lawyer can provide helpful advice on which bankruptcy procedure will best serve the interests of the company and its owners, and which type of plan is most likely to be approved by the court.

Source: FindLaw, "Chapter 11 - Bankruptcy Basics," accessed on April 7, 2017

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