The Chapter 11 process

Chapter 11 is a very complex process.  In this section, we will describe the basics of that process.  We will describe the papers which need to be filed to start a Chapter 11, the “first-day motions” which typically have to be filed on the first day of the Chapter 11, the automatic stay, U.S. Trustee reporting, the Section 341a hearing, the appointment of a Creditors Committee, the process of proposing and confirming a Chapter 11 plan, ways that a Chapter 11 can go wrong and litigation which may occur in a Chapter 11.

Some basic Chapter 11 concepts should be explained first.  The person or business who files a bankruptcy is called a “debtor.”  When any bankruptcy is filed, a bankruptcy “estate” is created which consists of all property rights held by the debtor at the time of the filing, plus some special powers created by the Bankrupty Code.  11 U.S.C. Section 541.  When a Chapter 7 is filed, a Chapter 7 trustee is appointed, and the Chapter 7 trustee has the legal power to control the estate.  When a Chapter 11 is filed, a trustee is not automatically appointed.  Rather, the debtor becomes a “debtor-in-possession,” which, subject to any limits which the Bankruptcy Court may impose, has all of the powers and duties of a trustee.  11 U.S.C. Section 1107.  The Bankruptcy Court, however, can order the appointment of a Chapter 11 trustee, to replace the debtor-in-possession.  11 U.S.C. Section 1104.  The Court also has the power to appoint an “examiner,” with some of the powers of a trustee.  11 U.S.C. Section 1104.

 

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