Chapter 11 bankruptcy terms, Part 1

Determining how a Chapter 11 bankruptcy works before your company files for Chapter 11 can be confusing, in part because the bankruptcy code is complicated. This blog post and next week’s post will discuss some of the key terms you might see while researching Chapter 11 bankruptcy.

Chapter 11 reorganization plan: The Chapter 11 plan is a plan created by the debtor that explains to the court what structural changes it will make in order to remain viable and pay back its debts.

Debtor in possession: In a Chapter 11 bankruptcy case, the debtor can continue to manage the business affairs without appointing a bankruptcy trustee. The debtor in possession has the rights and obligations of a Chapter 11 trustee. He or she must account for property, examine and object to claims, and do other actions required by a trustee.

U.S. trustee: The U.S. trustee’s role is to monitor the debtor in possession’s business operations, conduct a creditor meeting, impose requirements on the debtor in possession and, when necessary, convert or dismiss a bankruptcy case.

Creditors committee: A creditors’ committee is a group of unsecured creditors that consults with the debtor regarding the case, investigates the debtor’s conduct and helps the debtor create the Chapter 11 bankruptcy plan. The committee usually includes the creditors with the seven greatest claims in the bankruptcy case.

Equity security holder: An equity security holder, such as a shareholder or limited partner, may vote on a Chapter 11 reorganization plan and file a proof of interest in the case.

If you are considering filing for Chapter 11 bankruptcy, an experienced bankruptcy lawyer can help you understand how the case will play out and the options available to you as a business in debt.

Source: United States Courts, “Reorganization under the bankruptcy code“