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Chapter 11 reorganization plan in California

On Behalf of | Mar 24, 2023 | Chapter 11 Bankruptcy

When applying for a Chapter 11 bankruptcy in California, you must submit a reorganization plan outlining how to repay your debts. The bankruptcy court will review the plan and decide whether to approve or reject it.

Understanding Chapter 11 reorganization plan

Businesses or individuals that don’t want to liquidate their assets often use Chapter 11 bankruptcy to restructure their debts. This allows them to stay in control of their assets and businesses while they work to pay off their creditors using new and more favorable terms.

A good plan must include:

• A list of all creditors with an itemized breakdown of their claims

• The total amount owed to each creditor

• A proposed repayment schedule for each creditor’s debt

• A proposal for how the business plans to restructure its debts to become sustainable again

Preparing for court review

When you submit your reorganization plan to the court, an appointed trustee will review it and then make a recommendation to the judge as to whether they should approve it. The trustee must evaluate your plan in terms of its feasibility and fairness.

Feasibility involves evaluating whether you can pay off all your debts under the proposed repayment schedule. Fairness evaluates whether the proposal is reasonable for creditors, given their claims on assets or profits.

Court approval or rejection

If the court approves the reorganization plan, all creditors are legally bound to abide by its terms. This means they cannot attempt to collect additional payments from you outside of those listed in your plan. However, if the court rejects the plan, you must negotiate a different agreement with your creditors.

It’s important to understand that the court is looking for a realistic and fair reorganization plan. If, based on your circumstances, a Chapter 11 is not feasible, other options for protecting your assets and business include Chapter 7 bankruptcy, debt consolidation and out-of-court settlements.