About 30 days after the petition is filed with the Bankruptcy Court, the Chapter 11 debtor must attend and participate in a 341 meeting of creditors and a n Initial Debtor Interview. Both of these events are organized and run by the Office of the United States Trustee.
A Chapter 11 debtor must next file a plan. A debtor’s plan may be a plan of reorganization or a plan of liquidation. A plan of reorganization tells the Bankruptcy Court, creditors, and all parties in interest exactly how the Chapter 11 debtor is going to treat all debts and assets. A plan of liquidation has many of the elements of a plan of reorganization, except the debtor does not plan to keep operating its business after confirmation, but rather sell off and dispose of its assets.
The Bankruptcy Code requires that different creditors receive specific treatment in Chapter 11 bankruptcy. These are referred to as different classes of creditors. Creditor classes may generally be classified into the following categories:
– Administrative creditors, which include the debtor’s attorney and other professionals who are involved in the Chapter 11 reorganization and the restructuring of the debtor.
– Secured creditors, which include any creditor that has a preexisting lien on the debtor’s assets, such as in the case of a mortgage on real property, or a note on a financed automobile.
– Priority unsecured creditors, which include certain taxing authorities like the Internal Revenue Service, the State of New Jersey Division of Taxation, and other types of claims that receive special treatment under the Bankruptcy Code.
– General unsecured creditors, which include creditors who are not priority, and have no security in any of the debtor’s property, such as credit cards, medical bills, and any other type of general debt owed by the Chapter 11 debtor.
– Lastly, where the debtor is a business entity, any creditors who hold equity in the business, such as members in a limited liability company and stockholders in a corporation.
Creditors must file proofs of the amounts they allege due, and provide the Bankruptcy Court with specific details about how they allege they should be treated by the debtor. These are called proofs of claim. The Bankruptcy Court sets a deadline for creditors to file these proofs of claim. The debtor has the right to review and, where appropriate, to challenge any proof of claim believed to be inaccurate.