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Creating a Chapter 11 reorganization plan

| Dec 8, 2020 | Bankruptcy

Running a profitable business might be easier said than done, especially when debts keep piling up. Having too much debt is not the end of the road for Virginia business owners, though. Instead, it is possible to not only stay up and running but to ultimately become profitable through the process of filing for Chapter 11 bankruptcy.

A business may go through Chapter 11 one of two ways — either it files a petition, or one of its creditors does. Once either the debtor or the creditor files the petition, all collection efforts must stop. This gives the business the opportunity to create a reorganization plan to address its debts, which usually involves:

  • Renegotiating leases
  • Renegotiation contracts
  • Discharging debts
  • Partially repaying debts

A repayment plan will address remaining debts. This repayment plan separates creditors into classes, prioritizing those who will receive payments first. First priority debts repaid first include state and federal taxes, back-owed wages and also stockholder interests. Secured creditors are each given their own classes, and unsecured claims are in a group together in just a single class.

Reorganization plans are not totally up to the business. Creditors must also vote on the plan, and the court must approve it. Creating a reorganization plan that no one agrees on is an enormous waste of time and pushes the business back to the beginning of the process rather than moving forward. Seeking guidance on Chapter 11 reorganization plans soon after filing may be advantageous for Virginia businesses that are eager to see the benefits of bankruptcy.