MODULE 27 BANKRUPTCY 245

(3) Complete reorganization plan can still be approved by court if court determines plan is fair
even if some committees fail to approve it; called "cram down" power
4. Important provision is court-supervised rehabilitation plan
5. Allows for continued operation of business unless court orders otherwise
6. Provides for payment of part or all of debts over extended period
(1) Payment to creditors comes primarily from future income
7. Must divide claims into classes of similar claims and treat each class equally
8. Plan may provide for some creditors to receive stock in place of debt
(1) Preferred shareholders may he converted to common shareholders
(2) Common shareholders may forfeit shares of stock
(3) Typically, claimants receive reduced amounts
9. Fast tracking provides for small businesses (having debt less than $2,000,000) which cuts out
much of
red tape of bankruptcy proceedings
10. After court confirms plan and issues final decree
11. Debtor is discharged from debts that arose before confirmation of plan except those that were
agreed to continue or will continue under Bankruptcy Code
(1) New agreed-upon substituted debts are enforceable
12. Court may convert Chapter 11 reorganization into Chapter 7 straight bankruptcy if fairer
13. SEC has limited power to participate in bankruptcy reorganizations
14. When debtor keeps and operates business, debtor has right to retain employees and
professionals it
used before reorgan,ization
EXAMPLE: Debtor, after a Chapter 11 reorganization, wishes to keep its CPAjirm, This is permitted,
15. Debts Adjustment Plans-Chapter 13
16. Most individuals are eligible if
17. Have regular income, and
18. Owe unsecured debts of less than $336,900, and
19. 9we secured debts of less than $1,010,650
20. Initiated when debtor files voluntary petition in bankruptcy court
21. Creditors may not file involuntary petition under Chapter 13
22. Petition normally includes composition or extension plan
(1) Composition=-creditors agree to accept less than full amounts due
(2) Extension-provides debtor up to three years (five years if court approves) for payments to
creditors .
23. Filing of petition stays all collection and straight bankruptcy proceedings against debtor
24. Debtor has exclusive right to propose plan
(1) If debtor does not file plan, creditors may force debtor into involuntary proceeding under
Chapter 7 .
25. Plan will be confirmed or denied by court without approval of unsecured creditors
(1) However, unsecured creditors must receive as much as they would get under Chapter 7, and
(a) Either be paid in full, or
(b) Have all debtor's disposable income committed to plan
(c) Plan may put claims in different classifications but may not discriminate unfairly against
any of designated classes
1] Each claimant within same classification must receive same treatment
26. Court must appoint trustee in Chapter 13 cases
27. Debtor engaged in business may continue to operate that business subject to limitations imposed
by court
28. Completion of plan discharges debtor from debts dischargeable by law