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Chapter 11 Bankruptcy Terminology

Plan Of Reorganization:

A plan of reorganization is used by businesses filing chapter 11 bankruptcy. The business may be a corporation, partnership, or sole proprietorship. The plan of reorganization is a payment plan submitted by the debtor for repayment of debts to creditors. A plan of reorganization designates classes of creditors by which creditors will be paid out and provides a means for repayment. The plan must be fair and equitable, and has to be approved by the bankruptcy court.

A debtor has 120 days after the order for relief to come up with and file a plan of reorganization to the bankruptcy court. Creditors who do not agree with the debtor’s plan may submit their own plans to the court thereafter. Finally, a confirmation hearing is held where the plan is confirmed or rejected.

Disclosure Statement:

A disclosure statement is a written report prepared and filed by the debtor in a chapter 11 bankruptcy petition. The disclosure statement’s purpose is to provide the court and creditors information about the debtor’s reorganization plan. The court must approve this disclosure statement prior to implementing any reorganization plan.

The disclosure statement must provide “adequate information” of the current state of a company to allow the holder of a claim or interest to make an informed decision about the reorganization plan. Adequacy is determined on a case by case basis by the court depending on the nature and size of the business entity in question. The disclosure statement will document the parties that may accept or object to the reorganization plan, outline the difference received by creditors through a liquidation compared to a reorganization plan, contain historical information about the debtor, and consider the plan’s feasibility. Each creditor who has filed a Proof of Claim against the debtor will receive a copy of the disclosure statement.

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