Category Archives: Chapter 11
How the Absolute Priority Rule Affects Creditor Payments in Chapter 11
The absolute priority rule dictates the hierarchical order in which creditors’ claims are addressed during a debtor’s Chapter 11 reorganization. It is intended to ensure that senior creditors are paid in full before junior creditors or equity holders receive any distribution, thereby promoting fairness and predictability in the process. The absolute priority rule was established […]
Chapter 11 Filing Requires Intensive Documentary Preparation
A Chapter 11 bankruptcy allows a business in financial distress to reorganize and restructure its debts while continuing to operate, with the goal of returning to solvency. Filing for Chapter 11 is a complex process that requires substantial documentation. The bankruptcy trustee needs to have a complete picture of the company’s finances in order to […]
Availability of Chapter 11 Relief for Individuals
Chapter 11 bankruptcy is usually associated with business entities seeking to reorganize their debts and continue operations. However, individuals can also pursue this form of relief if their financial circumstances make other forms of bankruptcy, such as Chapter 7 or Chapter 13, unsuitable. This option may be viable for individuals with significant debt levels exceeding […]
Limits on Chapter 11 Debtors’ Use of Cash Collateral
In a Chapter 11 bankruptcy, the debtor is generally allowed to remain in control of their business as a debtor-in-possession. However, this control is subject to restrictions. One of these is prohibition of use of cash collateral, which refers to cash, securities, accounts receivable, inventory and other liquid assets that may be pledged as security […]
When Can Chapter 11 Plans Include Nonconsensual Third-Party Releases?
Nonconsensual third-party releases are clauses in a Chapter 11 reorganization plan that discharge certain non-debtor parties — such as the debtor’s officers, directors, shareholders, insurers, sureties or affiliates — from liabilities owed to creditors. These releases are nonconsensual because they bind creditors who do not consent to them, extinguishing their claims against these third parties. […]
How Clawbacks Can Affect the Progress of a Chapter 11
Clawbacks are mechanisms that allow a Chapter 11 bankruptcy trustee or debtor-in-possession (DIP) to recover certain payments or asset transfers made by the debtor prior to or shortly after filing for bankruptcy. These provisions aim to ensure equitable treatment of creditors and prevent debtors from unfairly preferring certain creditors or transferring assets to hinder creditor […]
“First Day Motions” in Chapter 11 Bankruptcy Cases
At the onset of a Chapter 11 bankruptcy case, the debtor’s attorney will make certain motions to the court to address immediate concerns, to allow the debtor to maintain business continuity and to preserve the value of the debtor’s property for creditors. Here is an overview of the most common “first day motions” and their […]
Business Bankruptcies Rose Sharply in 2024, and Trend May Continue
The recent year saw a marked increase in new business bankruptcies in the U.S., including Chapter 11 cases. According to statistics released by the Administrative Office of the U.S. Courts, there were 6,067 total commercial chapter 11 bankruptcies filed during the first nine months of 2024, a 36 percent increase over the 4,561 filed during […]
How a Liquidation Bid Can Derail a Prepackaged Chapter 11
When a company files a prepackaged Chapter 11 bankruptcy, it has already negotiated a deal with creditors and potential buyers for the business to be sold as a going concern. This approach can streamline the process, minimize disruptions and maximize value for stakeholders. However, complications can arise if a liquidation bid emerges as a competing […]
What Are the Essential Contents of a Chapter 11 Plan?
Chapter 11 of the United States Bankruptcy Code provides a mechanism for financially distressed businesses to reorganize their debts and operations. A Chapter 11 plan serves as the roadmap for this reorganization, outlining how claims and interests will be treated. It is based on whether the business can be reorganized for a return to solvency […]
