Sacramento Law Group

Debtor Strategies in Chapter 11 Bankruptcy

Before filing Chapter 11 bankruptcy the debtor can adopt several strategies to ensure that the plan will be confirmed by the court. In order for a Chapter 11 Bankruptcy case to be successful, the reorganization plan must be confirmed, otherwise the case will be dismissed or converted. If the case is converted into a Chapter 7 Bankruptcy, the debtor will lose their status as a debtor in possession and the business will have to be liquidated by a trustee. 

Nondischargeable Claims

The debtor should give some preference to non-dischargeable claims. Examples of these claims are tax claims, fraud claims, or intentional tort claims. Claims such as these should be paid fully in the plan, otherwise, there is the danger of the creditors suing the debtor for the balance even after a plan is confirmed. Creditors are less likely to approve a plan that does not propose full payment for nondischargeable claims.

Tax Effects

In formulating a reorganization plan, the debtor should also consider the tax consequences of the actions proposed in the plan. The sale of assets, for example, can have tax consequences. Taxes will need to be paid which might affect the profits available for distribution to creditors. A good chapter 11 bankruptcy plan will take into consideration the tax effects and mention these in the plan accordingly, together with the debtor’s plan on how to deal with tax consequences. In some cases, the debtor may need to consult with a tax attorney to identify and address the tax consequences of actions proposed in the plan.

Determine Liquidation Value

In order for a plan to be approved, the creditors must receive as much as they would in a Chapter 7 Bankruptcy proceeding. The debtor must include in the disclosure statement (which is submitted before the plan), the liquidation value of the debtor in possession, so that the creditors can assess the viability of the reorganization plan. A debtor should calculate the liquidation value before formulating the plan. 

Financial Projections

A good plan will also include financial projections for the business, especially if it is a reorganization plan. Financial projections will help the court and the creditors to decide on the feasibility of the plan, especially if the debtor proposes to pay creditors from future profits. 

Disclaimer

We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code. The information contained in this website is for informational purposes only and is not legal advice. Furthermore, the information contained in this website is not guaranteed to be up to date, accurate, or complete. An attorney-client relationship can only be established by signing a representation agreement.
*$900 Chapter 7 Bankruptcy Fee Disclaimer: While most cases qualify for the above fee, some cases are complex. Consequently, the above fee is only a sample fee (not a specific or guaranteed fee) and is subject to change at any time due to the necessity of charging more for complex cases. The sample chapter 7 fee represents the typical fee for a simple no-asset chapter 7 case. The $900 fee is only available to residents of the following counties: Sacramento, Placer, Yolo, Solano and San Joaquin. Residents of other counties may be charged more.