California Chapter 11 Bankruptcy: Factors to Consider in Plan Design
The most common forms of bankruptcy in the US are Chapter 7 and Chapter 13 bankruptcy protection. While Chapter 7 is available to individuals of all levels in the society, Chapter 13 bankruptcy is mostly used by married couples with property to protect against creditors during dire financial situations.
The lesser-known Chapter 11 bankruptcy is joint for businesses and organizations seeking to protect their assets in financial hardships.
A common difference between Chapter 11 and Chapter 13 California bankruptcy is that creditors are required to vote on whether the plan is to be confirmed by the bankruptcy court or otherwise. This step ensures thus that the debtor created a debt restructuring plan that is acceptable to both the courts and the creditors they are engaged with.
However, the debtor must understand the process involved in designing a workable plan.
One crucial step in the creation of a workable debt restructuring plan is the division of creditors. The division of creditors into classes is essential as creditors in bankruptcy proceedings tend to vote as members of respective courses. Taking into consideration the interests of the different categories of creditors in a bankruptcy suit would ensure that the vote goes through.
Secondly, the debtor has to take into consideration the nature of claims. Since claims include either impaired or unimpaired claims, it is usually most likely that the creditors, to secure their interests may decide to vote for their respective classes of assets.
In an impaired class of claims, the creditors might vote in favour of at least two-thirds of the total dollar amount. The class division should, therefore, take into consideration these parameters when designing a plan.
It is also crucial that debtors understand the working of the absolute priority rule. Though the creditors may vote against your plan, California bankruptcy courts may still confirm the plan by enacting the absolute priority clause if they find sufficient merits in the program.
