The pinnacle of a chapter 11 bankruptcy is the confirmation of a plan of
reorganization proposed and executed by the debtor. This requires that
the debtor file a plan which is accepted by the required class of creditors
prior to the court confirming the plan. The plan will outline the treatment
of the various classes of creditors and it’s the debtor’s
exclusivity period that plays a significant role in the plan process.
In order to allow the debtor to try and obtain a consensus amongst its
creditors, the bankruptcy code allows for the exclusivity period. Only
the debtor has a right to file a plan in the first 120 days of the case
being filed. The exclusivity period may be extended up to 18 months if
the debtor can demonstrate to the court good cause exists to extend the
exclusivity period. However, a creditor can seek to terminate the exclusivity
period if it can demonstrate to the court that good cause exists. Doing
so would allow other parties in interest to file competing plans of reorganization
with the debtor’s chapter 11 plan. The term “cause”
is not defined in the bankruptcy code but there is significant case law
outlining the relevant factors in determining cause.
A further protection conferred by the exclusivity period is that a debtor
which files a chapter 11 plan within the 120 period, automatically receives
another 60-day extension. This further delays the creditors from filing
a plan for a total of 180 days. Debtors who are approaching the 120-day
mark and don’t have a complete plan to propose can file their draft
plan with the court. This extends their exclusivity period and places
the burden on a creditor seeking to terminate the exclusivity period.
Upon the termination of the exclusivity period, any party in interest may
file a plan with the court. A party in interest is broadly defined to
include the debtor, trustee, equity security holders, creditor committee
and equity security holders. However, these parties must have an interest
in the outcome of the case. It is in the debtor’s best interest
to file a plan prior to the termination of the exclusivity period to prohibit
competing plans from being filed with the court.
Small business debtors have an automatic 180-day exclusivity period. The
primary requirement for qualifying as a small business debtor is having
debt that does not exceed $2 million at the time of filing and no creditor
committee appointed by the court.
The filing of a bankruptcy is complex and riddled with nuances that can
derail a case. The proper planning and counseling can make the difference
between a successful reorganization and the loss of a business.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers
with their debt problems, we have saved over 1,500 homes from foreclosure,
eliminated $100,000,000 in mortgage principal and consumer debt, and have
collected millions of dollars on behalf of our clients due to bank, loan
servicer, and debt collector violations, negligence and fraud.
Contact us for a free consultation to see how we may be able to help you.