Key Steps in the Chapter 11 Bankruptcy Process
Here are key steps in chapter 11 bankruptcy that you should always keep in mind!
Initiating the Bankruptcy Filing
First, you must declare bankruptcy by filing a petition in the bankruptcy court. This is the official start of the bankruptcy case and provides your business with bankruptcy protection from creditors’ actions like collection efforts or lawsuits.
Forming the Bankruptcy Estate
Step number two! Once your petition is filed, all the debtor’s assets become part of the bankruptcy estate. This estate is the pool from which creditors may be paid during the process of reorganization.
Creating the Reorganization & Disclosure Statement,
You must draft a reorganization plan and a disclosure statement. The reorganization plan and disclosure statement outline how your business intends to restructure its debts, improve cash flow, and continue its operations.
Approval of the Disclosure Statement
The bankruptcy judge reviews the disclosure statement in detail to confirm that it provides sufficient information for creditors. Once approved, the creditors committee and individual creditors can assess the plan.
Securing DIP Financing
Step 5 is securing DIP financing! Many companies rely on DIP financing during Chapter 11 bankruptcy to raise capital and maintain operations of their business. This financing is crucial for ensuring uninterrupted business operations during the restructuring process.
Negotiating with Creditors
The creditors committee, which represents the interests of unsecured creditors, plays a game-changing role in the negotiation process. You, as a businessperson, may use cash collateral and other resources to ensure creditors are treated fairly.
Creditors Vote & Reorganization Plan
After negotiations are done, creditors review and vote on the reorganization plan. Approval generally requires a majority of creditors to vote, ensuring consensus on how to restructure debts.
Implementing the Reorganization Plan
Step 8: Implementing the organization plan! Once approved, the business begins executing the plan, focusing on reducing all the expenses, improving the cash flow, and fulfilling obligations to repay creditors.
