For 120 days after the petition is filed the debtor is the only party who is entitled to submit a Chapter 11 protection plan of reorganization. It is possible to apply for an extension for this, which can be for any period up to 18 months after the date the petition was filed (or in the case of an involuntary petition, the entry of the order for relief was filed). Acceptance of the plan, once filed, is allowed up to 180 days after the petition or order date. Again the court can extend this period to a maximum of 20 months.
After this period, other interested parties are entitled to file their own plans. It is not uncommon for more than one plan to be filed, either competing with the debtor’s plan or with another creditor’s plan. The U.S. trustee, if one has been appointed, must do one of three things: a) file their own plan, b) write a report explaining why they have decided not to file a plan or c) recommend conversion to another chapter, or dismissal of the petition. It is possible to file a “liquidation plan” under Chapter 11, which has the effect of allowing the debtor to liquidate assets in a far more favorable way than would be possible under Chapter 7.
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Under Chapter 11 a reorganization plan has to organize claims and interests into distinct classes, which will determine how each class of creditor will be treated. There will usually be four classes of which secured creditors take precedence, then unsecured creditors with priority (such as banks, bondholders etc), followed by other unsecured creditors, and then finally equity security holders. A plan is accepted or rejected according to the votes of these classes of creditors.
As there may be more than one reorganization plan filed, and as it is possible to file amendments to plans, each plan and any updates must be clearly marked with the date and the name of the creditor or other entity filing it.
More than one plan may meet the requirements for confirmation. In this situation, the court decides which plan to confirm taking into consideration the classes of the respective creditors. Objections to a reorganization plan can be filed by any interested party. Any objection will trigger a hearing on confirmation.
The court must satisfy itself of a number of factors in order to confirm the plan. Unless the plan is a liquidating plan, it should not be likely to lead to liquidation, or more reorganization. The plan must also have been filed in good faith and in accordance with the Bankruptcy Code. Once the plan has been confirmed, the debtor is bound by the reorganization as stated in the plan. Although there are some exceptions, generally an order for confirmation acts as a discharge.
If you have questions about bankruptcy or your rights under Chapter 11, consult with a bankruptcy attorney today.