In a Chapter 11 business bankruptcy, a debtor decides to restructure or reorganize.  The debtor is permitted to continue running the business as “debtor in possession.”  Whether, and in what financial condition, the debtor and the business might emerge from bankruptcy depends on the success of the reorganization plan, which must be approved by the Bankruptcy court.

After filing for Chapter 11, a debtor has 120 days to propose a plan of reorganization that satisfies the court as well as the creditors, who are granted the opportunity to vote on the plan.  If the 120-day period passes and if no plan has been submitted, creditors may instead propose their own plans.  If a debtor’s plan does not receive court approval, the bankruptcy may be converted to a Chapter 7 liquidation plan or even dismissed outright. If the bankruptcy petition is dismissed, creditors may exercise the remedies afforded to them under state law to pursue their claims.

What is included in a Chapter 11 reorganization plan?

In a Chapter 11 bankruptcy reorganization plan, each claim or debt must be specified and classified by the debtor.  Debts are prioritized by type and amount, and non-priority debts may not be paid in full, or at all.  Only when one class of debts has been completely paid will the next tier be considered for payment. Priority of payment is:

1. Secured debt
2. Unsecured debt
3. Additional classifications of debt with differing priority, such as employee claims.

A Chapter 11 bankruptcy reorganization plan must also specify how each debt will be handled in terms of payment, length of time, and how the specific steps will be implemented. A plan could also include liquidation of assets, such as in a Chapter 7 bankruptcy, though in a Chapter 11 the monies raised may not all be applied to debts; some may go toward the continued operation of the bankrupt business.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about Chapter 11 reorganization plans, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.

The term “cramdown” refers to a situation in bankruptcy in which secured creditors are required to accept a reduction in what is owed.

Interest rates, payment amounts and principal balances may be lowered, or “crammed down” in order to facilitate a debtor’s ability to pay.  In the recent mortgage crisis, cramdowns were prominent in bankruptcy proceedings to assist many debtors facing foreclosure.

In a Chapter 7 or 13 bankruptcy proceeding, cramdowns may be applied to secured debts such as property mortgages (except on the debtor’s primary residence) or car loans.  With a cramdown  Chapter 13 debtor might be granted a longer period in which to pay;  while a Chapter 7 bankruptcy debtor may see secured liens or debts disappear as a result of the cramdown modification.

The cramdown mechanism in bankruptcy is one any creditor would prefer not to encounter.  Whatever the situation, however, the proactive assistance of an experienced creditor’s rights attorney can be the best-advised first step for any creditor asserting claims in a bankruptcy.

Working with an experienced, knowledgeable Arizona creditor’s attorney can help tremendously when evaluating a bankruptcy filing.  If you would like more information about cramdowns in bankruptcy, creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.

The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters.  We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases.  If you need assistance with your collection matters, please contact us at (480) 584-5660.