Business & Finance Bankruptcy

Timeline of a "Typical" Individual Chapter 11 Case

Most people who file bankruptcy will file either a Chapter 7 or a Chapter 13 case. But, Chapter 11 is also available. It can be a lengthy and expensive process, and most individuals will not chose to take advantage of it. But, for some it can be an effective tool under certain circumstances, including people with professional practices, people with real estate holdings, or people who cannot qualify for a Chapter 13 because they owe too much money.

NOTE: This is a typical timeline in a typical individual Chapter 11 case. Deadlines can often be moved with permission of the court, and not everything happens the say way. Your attorney will be your guide on when actions are appropriate.   

To learn more about the timeline in a corporate chapter 11, click Timeline of a "Typical" Corporate Chapter 11 Case.

To learn more about Chapter 11 in general, read What is Chapter 11 Bankruptcy?

To learn more about the rules that govern "small" business bankruptcy cases, check out this article: Small Business Bankruptcy in Chapter 11.

The petition is filed. The day on which the petition filed is called the filing date or the petition date. In most bankruptcy courts, cases are numbered chronologically starting with 14-00001. The "14" refers to the year in which the case is filed. 

Much paperwork has to be filed in a Chapter 11 case, but it isn't always filed on Day 1. The schedules of debts, assets, income and expenses, along with the statement of financial affairs and other documents are often filed later.

The debtor has 14 days to file the additional documents, and can request even more time if necessary. 

After the case is filed, the parties will often to events as happening pre-petition (before) or post-petition (after). For instance, "The Debtor incurred the debt 90 days pre-petition." "The Debtor breached the contract two months post-petition."

     The Debtor-in-Possession:  Most debtors in a Chapter 11 case continue to conduct business on their own but under the supervision of the Bankruptcy Judge. Thus, a Chapter 11 debtor is often referred to as Debtor-in-Possession, indicating the Debtor is in possession of its assets and business. 

First Day Motions:  A Chapter 11 debtor usually files a Chapter 11 case so that he can continue doing business while he reorganizes his debt. But, the Chapter 11 debtor has get permission from the bankruptcy judge to take certain actions, and the debtor may will file First Day Motions within a day or two of filing the petition. These First Day Motions may request permission to make a regular payroll, use credit to purchase stock, pay pre-petition claims of critical vendors, pay utilities, pay customer claims like gift certificates, refunds and warranty claims, pay workers' compensation, and many other potential motions depending on the type of business. 

The court will schedule a hearing on these motions within the first few days, usually before most of the creditors even know that the case was filed or receive notice.

First Week: Usually within the first week, a notice is sent to all creditors and other interest parties. The notice includes information on the filing date, the case number, contact information for the attorneys representing the debtor. certain deadlines, and the time and place of the Meeting of Creditors. Here's a sample Notice of Commencement of Case

Election of Creditor's Committee: In a corporate case, the US Trustee will invite the debtor's 20 largest unsecured creditors to form a creditor's committee. The purpose of the creditor's committee in a Chapter 11 case is to represent the interests of the unsecured creditors, who often have claims that would make direct participation in the case (and hiring an attorney) cost prohibitive. Appointment of a creditor's committee is rare in individual cases, largely because the debtor is less likely to have enough unsecured creditors with a large enough stake in the outcome of the case. For debtors who qualify as a "small business case," the US Trustee provides this supervision.

Monthly Operating Reports: The debtor is required to file a report each month with the court that reflects income and expenses, and other financial activity like additional debt incurred. These reports are public documents and can be obtained through the individual court's website or through the federal government's court document portal PACER.

Initial Debtor Interview: The US Trustee will schedule a meeting with the debtor shortly after the case is filed. The purpose of the meeting is to make sure the debtor understands her responsibilities with respect to reports, bank accounts, incurring debt and paying debts during the case, and other items. Most offices of the US Trustee will provide written guidelines like these. Your attorney will also prepare you for this meeting. 

Quarterly US Trustee Fees: In addition to paying the filing fee and attorney's fees, Chapter 11 debtors are required by law to pay a fee each quarter to the US Trustee that in part defrays the additional cost of supervision by the US Trustee in a Chapter 11 case, as opposed to a Chapter 7 or Chapter 13 case. These fees are based on the disbursements the debtor makes during the calendar quarter and start at few hundred dollars and goes up from there. The fee is usually due the last day of the month following the end of the quarter.

Meeting of Creditors: Also known as the 341 Meeting, the Meeting of Creditors is usually held about a month after the case is filed. The Meeting of Creditors is conducted by the US Trustee's office. Unlike Chapter 7 or Chapter 13 cases, where only the debtors are likely to attend, in a Chapter 11 case of any size, creditors actually take an active role in the meeting. This is usually a creditor's first opportunity to hear of the Chapter 11 debtor's plan for reorganization, or to ask about assets or treatment of debts. 

Deadline to file Claims: In a Chapter 11 case, the court will set a deadline to file proofs of claim. Whether the creditor is required to file a claim depends on whether the claim is listed as disputed, and whether the creditor is happy with the amount the debtor lists as owed.   

Appointment of Ombudsman: In larger Chapter 11 cases, the Bankruptcy Code contemplates the appointment a consumer privacy ombudsman and/or a patient rights ombudsman, which are disinterested persons charged with the task of protecting the interests of those populations of parties, especially if the debtor plans to sell customer-related information or the debtor is a health care provider.

Disclosure Statement: For most Chapter 11 cases, the Debtor has 120 days after the petition is filed to file a Disclosure Statement, which is a preliminary step to the approval of a Plan of Reorganization. The Disclosure Statement describes the company, its history, its governance, significant issues facing  the company including why it sought bankruptcy protection, and provides a summary of its Plan of Reorganization. 

If the case qualifies as a "small business case," the court can dispense with this requirement. 

Plan of Reorganization: For most Chapter 11 cases, the debtor has 180 days after the petition is filed to file a Plan of Reorganization. This is the document that sets forth the debtor's plan for reorganizing its debts. It separates the debts by type, giving a description of how each class of claim will be treated. For instance, each secured creditor may have its own class, but the unsecured creditors may be divided by type and how much is owed. The plan may (or may not) include classes like:
  • Priority Creditors (like taxes, employee claims)
  • Administrative creditors (like bankruptcy lawyers, trustee fees)
  • Trade creditors
  • Warranty creditors
  • General Unsecured Creditors under $500
  • General Unsecured Creditors over $500

For each class, the Plan will state how much a claim will be paid, when it will be paid, and how it will be paid.

Voting on the Plan: After the Disclosure Statement is approved, the court will set out a schedule for voting on the Plan of Reorganization. Every creditor who is eligible to vote on the Plan will receive a ballot and instructions on voting. The creditor is voting on whether it accepts or rejects how its claim will be treated and paid.

Hearing on the Plan: The Court will schedule a hearing to review the voting and consider approval of the plan.  

Competing plans: At times, various groups of interested parties may put forth their own plan of reorganization for the debtor. When this happens, the Court will often send out both plans and ballots at the same time. If a competing plan wins the vote, the Court may approve it over the Debtor's plan, in which case the Debtor will be required to abide by the competing plan.

Substantial Consummation of the Plan: At some time after the events in the Plan of Reorganization has been accomplished, the debtor will file a notice with the court that it has completed the Plan. The case will not necessarily be closed because there may be other items - particularly litigation - that aren't resolved. 

Discharge of the Debtor: Unlike corporate Chapter 11 debtors, individual Chapter 11 debtors can still receive a discharge of debts, but only after all payments are made under the plan. Since this may take several years, debtors often seek to temporarily close a case after approval of the plan to prevent having to pay quarterly fees to the US Trustee. 

Case closing: Often years after the case is filed, once the plan has been completed and all, or virtually all litigation is finished, the case will officially be closed.

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