Bankruptcy / Chapter 11 / Reorganization Plan Example

Chapter 11 Reorganization Plan Example: 5 Things to Know

Written by Ben Tejes
Updated Oct 11th, 2023

Businesses and individuals whose debts exceed the Chapter 13 debt limits file for reorganization under Chapter 11. Individuals with very high income and substantial or complex assets may find Chapter 11 offers more flexibility and benefits than a Chapter 13 case. Chapter 11 cases are far more complex and involved than a Chapter 13 reorganization. However, corporations are not permitted to file under Chapter 13. 

A small business may qualify to file under Chapter 11 Subchapter V to streamline the process and reduce costs. There are also restrictions for filing under Subchapter V or Chapter 11. For more information, you may be interested in the Chapter 11 subchapter 5 process.

Most companies and individuals who consider filing under Chapter 11 retain a Chapter 11 bankruptcy lawyer. The reason for retaining a lawyer is to ensure that you meet all legal requirements and deadlines. However, hiring an attorney also ensures that someone who understands Chapter 11 bankruptcy laws is working to protect your best interests throughout the case. Ascend understands that some parties may want to go it alone. In some cases, a person may be searching for information about Chapter 11 plans before contacting an attorney. Our goal is to provide you with relevant, useful information that helps you make the best decision possible regarding your finances and options for reorganizing debt.

1) What is a Chapter 11 Bankruptcy Case?

Chapter 11 cases are large reorganizations. This chapter of bankruptcy is used by large corporations, such as J.C. Penney, Neiman Marcus, Toys “R” Us, PG&E, and Chrysler, to reorganize their debts so that they can continue operating instead of closing the doors and liquidating the business assets. However, as stated above, Chapter 11 bankruptcy cases can also benefit small businesses and individuals.

2) The Chapter 11 Plan of Reorganization 

The Chapter 11 plan is a detailed roadmap for how the company intends to reorganize its debts. When you complete the Chapter 11 process, the plan becomes a new binding contract between the debtor and its creditors. Because companies need the flexibility to restructure their debts, the Chapter 11 plan allows a debtor to perform a wide variety of actions. Some of the benefits of a Chapter 11 plan include:

a) Stops Litigation

The Chapter 11 case stops pending litigation and future litigation without bankruptcy court approval. Most disputes are resolved through the Chapter 11 plan, which is generally more beneficial to the Chapter 11 debtor. 

b) Recovery of Pre-Petition Transfers and Payments

The debtor may recover preferential payments or transfers made within a short time before the Chapter 11 case was filed. This step allows the debtor to reclaim money or property it may have transferred before deciding to file Chapter 11. The money and property can then be used to develop an effective reorganization.

c) Renegotiation or Reject Contracts and Leases

The ability to reject contracts and leases or renegotiate the terms can be a valuable benefit of Chapter 11. The company can renegotiate the terms of the contract or lease so that it becomes affordable for the company to continue the relationship. If the contract or lease is burdensome, the company can reject it in the Chapter 11 plan.

d) Employment Matters

The Chapter 11 plan allows the debtor to negotiate or reject employment and labor contracts. It also allows the debt to change pension plans and other obligations. This step can also be important to ensure that the company can meet its other obligations to continue operating. While there are many benefits of filing Chapter 11, there are also some matters that you should carefully consider. Things to consider before filing Chapter 11 include, but are not limited to:

  • The cost and time involved in filing and completing a Chapter 11 case.
  • Immediate cash flow problems. Debtors generally need to file motions to use cash if their accounts or receivables are used as collateral for loans.
  • Most Chapter 11 debtors remain in control of their business, but there could be some loss of business control depending on the circumstances of the case.
  • Business decisions may be limited. Chapter 11 debtors are generally not permitted to take risks or make decisions that are out of the ordinary course of business. 
  • Rejecting contracts can result in damage claims, which must be handled through the Chapter 11 plan.
  • Guarantors may face collection actions for debts that are personally guaranteed.
  • Creditors may request that the court appoint various committees to represent groups of creditors. These committees can have a significant influence on the terms of a plan. A certain percentage of creditors must approve the Chapter 11 plan. Also, creditors can file competing Chapter 11 plans in some cases.

Before filing Chapter 11, make sure that you understand the potential risks and benefits. Once you file a Chapter 11 case, it can be difficult to undo the chain of events that are set in motion by the filing of the bankruptcy case.

3) What is Included in a Chapter 11 Plan?

A Chapter 11 plan contains several sections. Each section of the plan addresses a specific financial matter. Creditors are divided into “classes” based on the type of debt and how the debt is being treated. In addition to the Chapter 11 plan, the debtor must submit a detailed disclosure statement. The disclosure statement contains a short history of the company and details about the company’s business affairs, liabilities, and assets. The disclosure statement is designed to give creditors sufficient information to decide if they want to vote in favor of or against a proposed Chapter 11 plan. 

A typical Chapter 11 plan includes:

  • Definitions of terms;
  • Listing of Administrative Claims;
  • Classification and Treatment of Claims;
  • Acceptance or Rejection of the Plan;
  • Effects of Confirmation of the Plan;
  • Funding of the Plan;
  • Means for Implementation of the Plan;
  • Duties of the Debtor;
  • Procedures for Resolving Claims;
  • Treatment of Unexpired Leases and Executory Contracts;
  • Provisions Governing Distributions;
  • Equity Interests and Disputed Claims;
  • Conditions for Confirmation and Consummation of Plan and,
  • Miscellaneous Provisions.

Chapter 11 plans must meet all requirements under the United States Bankruptcy Code. Local bankruptcy courts may also have forms or local rules for Chapter 11 plans. 

4) Examples and Samples of Chapter 11 Plans

The Bankruptcy Court for the Central District of California provides Samples and a Tutorial for a Chapter 11 Plan and Disclosure Statement. The samples and the discussion give you an idea of the complexity of a Chapter 11 plan. Some Chapter 11 plans for a small business could be a dozen pages long. Other Chapter 11 plans could be 100 or more pages long. It depends on the debtor and financial matters that must be addressed in the Chapter 11 plan. The US Courts website provides a standard form for a Chapter 11 plan for a Small Business Case Under Chapter 11, which highlights the minimum information that must be included in a Chapter 11 plan.

5) Estimate Chapter 11 Subchapter 5 Qualification

Another Chapter 11 bankruptcy to consider is subchapter 5. The subchapter 5 bankruptcy is often less expensive and can help small businesses with manageable debt that want to continue to operate.

You may be wondering whether you qualify for a Chapter 11 Subchapter 5. To do so, you can take the Chapter 11 Subchapter 5 qualification calculator below to estimate qualification.

Are You Ready to Explore Chapter 11 Plans In More Detail?

We have designed a Chapter 11 calculator that can help you estimate whether you qualify for a Chapter 11 Subchapter 5.  We encourage you to test it out and then contact Ascend at 833-272-3631 to discuss Chapter 11 bankruptcy cases in more detail.