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Chapter 11

Upon filing the petition, the debtor automatically becomes what is called “debtor in possession”. That means the debtor can keep and control all its assets while undergoing reorganization under chapter 11 until the case is dismissed or converted, or a trustee is appointed. 

A reorganization plan must be filed with the bankruptcy court together with a written disclosure statement, which must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to make an informed judgment about the plan. The court must approve the written disclosure statement in confirmation hearing, before the plan is accepted or rejected.

The plan must include a classification of all claims and how the claims are managed under the plan. Creditors who will be paid less than the full value of their claims vote on the plan. The Bankruptcy Code does not specify time limits for filing the plan, however, the debtor has an exclusive right to file a plan during a 120-day period, which may be extended or reduced by the court. After the period has expired, any party in interest, except for United States trustee, may file a plan. This is to ensure a case's timely resolution and to provide incentive for the debtor to file a plan within the exclusive period. 

Chapter 11 bankruptcy provides several types of debtors that would be treated differently than a regular chapter 11 case debtors. First one is small business debtor defined by the Bankruptcy law as a person that is involved in commercial or business activities and has secured and unsecured debt that don't exceed $2,000,000. A small business case proceeds faster than a regular chapter 11 case because the court may conditionally approve a disclosure statement, subject to final approval after notice and a hearing and solicitation of votes for acceptance or rejection of the plan. Thereafter, the disclosure statement hearing and the confirmation hearing may be combined. Besides, the period of time within which the debtor may exclusively file a plan is shortened to 100 days. 

Another type of debtor that has special provisions under Chapter 11 is a single asset real estate debtor. The term “single asset real estate” refers to such a property that generate almost all gross income of the debtor and which has no major businesses operated on it. Creditors of a single real estate debtor may obtain a relief from automatic stay under circumstances provided by the Bankruptcy law, which are not available to creditors in ordinary bankruptcy cases. On the request of such creditors, the court will grant relief from the automatic stay to the creditor unless the debtor proposes a feasible reorganization plan or begins making adequate interest payments to the creditor. 

As with cases under other bankruptcy chapters, a stay of all creditor actions (with several exception) against the debtor automatically applies when the bankruptcy petition is filed. The automatic stay gives the debtor a breathing spell to try to resolve its financial difficulties through negotiations. Although, creditor are stayed from action against the debtor, the Bankruptcy Code permits certain professionals (a trustee, a debtor's attorney, etc.) to apply for fees during the case, and the debtor may be required to pay those professionals, unless such expenses arose before the filing of the petition. 

In a chapter 11 case, a liquidating plan is permissible. Such a plan often allows the debtor in possession more economically advantageous liquidation of the business than that of chapter 7. It is possible for proponent of the plan to modify it any time before the confirmation, provided all the requirements of chapter 11 are met in modified plan. Besides, any party in interest may file an objection to confirmation of a plan. If no such objections have been made timely, the Code allows the court to determine that the plan has been proposed in good faith and according to law.

The confirmation of a plan discharges the debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor is required to make payments according to the reorganization plan and is bound by the provisions of it. 

Confirmation of a reorganization plan discharges any type of debtor—corporation, partnership, or individual—from most types of prepetition debts. However, it does not discharge an individual debtor from the debts that are nondischargeable by the Bankruptcy Code, including, but not limited to:

• Debts forgotten to be listed in bankruptcy papers, unless the creditor learns of the bankruptcy case;
• Child support and alimony;
• Debts for personal injury or death caused by intoxicated driving;
• Student loans, unless it would be an undue hardship for debtor to repay;
• Fraudulently incurred credit card debt;
• Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution, and
• Recent income tax debts and all other tax debts. 

Also, confirmation does not discharge the debtor if the plan is a liquidation plan, as opposed to one of reorganization, and the debtor is not an individual.