Financial Relief Legal Advocates, Inc.

John H. Bauer

(714)319-3446

Chapter 11 Bankruptcy Practice

First, my interest in Bankruptcy stemmed from the time that I was an active real estate broker and investor from 1995 through 2007 during which time I became a licensed real estate broker in California, Arizona, and Florida.  As a result, I became thoroughly familiar with the real estate purchase and sale process including open market purchases and sales, auction purchases and sales, developer purchases and sales, and government purchases and sales (including the HUD and VA programs).  In fact, for these years, I became a Certified Real Estate Broker with the Federal Dept. of Housing and Urban Development in both California and became quite familiar with the implementation of government loan programs.  Due to the real estate depression starting in 2008, however, I also became familiar with the downside of real estate—how properties which were valued so highly could now so dramatically decrease in value that you could be in a “negative equity” position and perhaps even face the possibility of foreclosure as rental income dropped accordingly with a bad economy.

When I studied the deterioration of real estate values, I learned quickly that property owners would generally lose their properties if they filed a Chapter 7 case—if they were behind in their payments.  This type of bankruptcy simply didn’t allow for repayment of past due mortgage payments.  The only choice was to give up these properties and walk away!  This was a terrible option, I thought.  I’ve always thought of Chapter 7 Bankruptcy as a simple walk away liquidation bankruptcy.  You typically lose your assets unless you are current with their scheduled monthly payments at the time you file your case.

When I reviewed Chapter 13, I noticed first of all that corporations and LLC’s could not file under this section.  Next, this chapter was also very limited with respect to the rights of individuals to reduce the loan balances of their rental and business properties.  Repayments of these reduced loan balances had to occur over 60 months which made loan reductions impossible!  The best purpose of this Chapter, I thought, was merely to repay federal taxes or pay back due home mortgage payments over a period of time. In my humble opinion, I didn’t see any reason to work with this Chapter.  It just seemed too limited and lacked flexibility.

In contrast, when I looked at Chapter 11, I saw unlimited imagination.  This is a Chapter where a debtor (individual or corporation or LLC, etc.) is definitely not placed in a box.  He has the rights of a Chapter 13 where he can strip a second loan off his home where there is no equity to support it.  But he can also pay loan arrearages (past due payments) on the first loan secured on his home over whatever period of time that a lender will agree!  In one of my cases, my clients had past due payments on their lovely home in Orange County of about $50,000.  The bank agreed to have the clients repay those arrearages over 76 months at 0% interest.  Under these circumstances, the clients could make those payments and keep their very lovely home in southern Orange County.

On many other Chapter 11 cases, I procured Court Orders which reduced my clients’ loans secured on their rental and business properties.  I have done this so often I don’t think that I can accurately list all the properties!  Let me give you an example of this.  A client has rental apartments with a loan of $3.0 million, but the property is presently worth $2.5 million.  In Chapter 11, I can go in—with the help of an appraisal—and get the Court to reduce the existing loan balance from $3.0 to $2.5 million and repay this balance over the time period remaining on the note or any longer period of time I can agree with the bank’s counsel.  In other words, if the loan period is 25 years, the client can typically repay the $2.5 over 25 years at an agreeable interest rate, typically 5.0%, subject to agreement with the bank.  This is exciting and allows the client to keep the property!!

I had a recent case where my client was a national printing company.  It had purchased two large printers for a price of $3.1 million.  In fact, the creditor obtained a judgment for this amount in the Northern District of Illinois for roughly this amount plus attorney fees.  After filing a Chapter 11 case in the Central District of California (Orange County, CA Court), I was able to get a Chapter 11 Plan confirmed where my clients would purchase the presses for $900,000. over a 6 year  period.  This great reduction in valuation created a very substantial reduction in monthly payments and allowed the business to continue and grow.

In other words, when you read the above, you can see that Chapter 11 is a very effective way for individuals and companies to reorganize their finances so they can keep their properties and companies rather than give them back to the banks or close their companies.  This is the opposite of Chapter 7 where you give in and give up…In fact, with a Chapter 7 case, once you file, if the debtor is a company, it must immediately cease all business and give up all of its assets to the Trustee who then distributes all the cash and assets to the creditors of the business.

A Chapter 11 will save the individual or business by trimming debt and reducing mortgage balances with court permission.  Once the Court grants your request to reduce your mortgage or debt, the bank must allow you to pay the newly reduced payment or it will be held in contempt of Court!  And I work out a payment plan as part of the Chapter 11 that you can afford, based upon your budget, that the Court approves.

On the other hand, if you wish to give back to property or get out of an expensive lease, for example, without owing the bank a deficiency balance, you can do this in Chapter 11.  You may be able to pay off any deficiency to the bank for as little as four cents on the dollar, all depending upon your personal or corporate budget.

At four cents on the dollar, for example, you would pay back just $16,000. on a $400,000. deficiency.  On a 60 month repayment schedule, you would end up paying just $267. per month.  That’s a really effective way to get rid of a $400,000. debt!  This same principle works for properties which you have already given back to the bank.

Chapter 11

Chapter 11 is a chapter of the United States’ Bankruptcy Code which permits reorganization under the bankruptcylaws of the United States.

Chapter 11 bankruptcy is available to every individual and every business, whether organized as a corporation, sole proprietorship, or LLC.

Pursuant to the United States Code, in order to qualify for a Chapter 11, the party seeking relief must have unsecured debts of $336,000. or more and/or secured debts of $1,081,000. or more.

In Chapter 11, in most instances, the Debtor remains in control of its business operations as a “debtor in possession,” and is subject to the oversight and jurisdiction of the court.

*The biggest advantage of this chapter is the ability to “cram down” mortgages on business and rental properties to present market value.  For example, if you own a rental property with a mortgage of $1,000,000., but its present market value is $600,000., we can seek a court order than the new value of this property for purposes of this bankruptcy should become $600,000. and that the remaining $400,000. should be stripped from the property altogether and be treated as a purely unsecured loan and repaid at a much lower rate (sometimes as low as 3 cents on the dollar…depending upon your individual qualifications.)

If you have a number of rental or business properties, you can literally reduce the secured loans that you have to repay by $$$hundreds of thousands of dollars if not $$$millions of dollars.

Once you have crammed down all your mortgages, your monthly budget becomes much more manageable.  You agree to repay your unsecured creditors typically a much reduced monthly amount over 5 years.

These bankruptcies require very substantial attorney work and may take up to a year or more to confirm.

After confirmation and receiving a final decree which closes the case, the Debtor can move forward with his business without further reporting to the United States Trustee and the Court.  He then files for a final discharge of the bankruptcy after paying off general unsecured debtors typically over a 5 year period.

The U.S. Trustee

The U.S. Trustee plays a major role in monitoring the progress of a chapter 11 case and supervising its administration. The U.S. Trustee is responsible for monitoring the debtor in possession’s operation of his business and the submission of operating reports and fees.  Additionally, the U.S. Trustee monitors applications for compensation and reimbursement by professionals and plans and disclosure statements filed with the court.

The U.S. Trustee conducts a meeting of creditors, often referred to as the “section 341 meeting,” in a Chapter 11 case.  11 U.S.C. 341.  The U.S. trustee and creditors may question the debtor under oath at the section 341 meeting concerning the debtor’s acts, conduct and property.

We will notify you when the meeting is scheduled and will thoroughly prepare you for the types of questions that the U.S. Trustee will ask you during the course of this meeting.  Although this case is called a “meeting of creditors,” creditors do not typically attend this meeting.  It is usually a meeting between you and us as your counsel with the United States Trustee to answer questions under oath about your financial affairs and assets.

The U.S. Trustee also imposes certain requirements on the debtor in possession concerning matters such as reporting its monthly income and operating expenses, establishing new chapter 11 bank accounts, known as DIP accounts (debtor in possession accounts), and paying current employee withholding and other taxes.

You must close all your bank accounts at the time of filing your chapter 11 case and open these new “DIP accounts” from which you will place all your income and account for all your disbursements and expenses during the course of the bankruptcy.

By law, the debtor in possession must pay a quarterly fee to the U.S. Trustee for each quarter of a year until the case is converted or dismissed.  28 U.S.C. 1930(a)(6).

The amount of the fee, which may range from $250. to $10,000., depends on the amount of the debtor’s disbursements out of his bank accounts (DIP accounts) during each calendar quarter.

If a debtor in possession fails to comply with the reporting requirements of the U.S. Trustee or orders of the bankruptcy court, or fails to take the appropriate steps to bring the case to confirmation, the U.S. Trustee may file a motion with the court to have the debtor’s chapter 11 case converted to chapter 7 or have the case dismissed.

Avoidable Transfers

The debtor in possession or the trustee has what are called “avoiding” powers.

These powers may be used to undo a transfer of money or property made during a certain period of time before the filing of the bankruptcy petition.  By avoiding a particular transfer of property, the debtor in possession can cancel the transaction and force the return or “disgorgement” of the payments or property, which then are available to pay all creditors.

Generally, and subject to various defenses, the power to avoid transfers is effective against transfers made by the debtor within 90 days before the filing of the petition. But transfers to “insiders” (i.e. relatives, general partners, and directors or officers of the debtor) made up to a year before filing may be avoided.

In addition, under 11 U.S.C. 544, the trustee is authorized to avoid transfers under applicable state law, which often provides for longer time periods.

The purpose of the avoiding powers is to theoretically prevent unfair pre-petition payments to one creditor at the expense of all other creditors.

Please note that the “avoiding” powers referred to above should be considered before making a decision to file bankruptcy.  The U.S. Trustee might seek to set aside transfers that you fully intend and wish to make to friends, relatives, or business associates.

The Trustee can demand that any of those parties return the money transferred.

Motions

Before confirmation of a plan, numerous activities take place in a chapter 11 case.  Continued operation of the debtor’s business may lead to the filing of a number of contested motions.

The most common are those seeking relief from the automatic stay, the use of cash collateral, or to obtain credit.  There may also be litigation over executory (i.e. unfulfilled) contracts and unexpired leases and the assumption or rejection of those executory contracts and unexpired leases by the debtor in possession.  11 U.S.C. 365.

Delays in formulating, filing, and obtaining confirmation of a plan often prompt creditors to file motions for relief from stay, to convert the case to chapter 7 (liquidation), or to dismiss the case altogether.  Many delays can occur before filing a Disclosure Statement and Plan with the Court.  One of the greatest delays is due to the time it takes to seek agreements with secured lenders on the values of properties which the Debtor in possession wishes to keep through the bankruptcy.

Once a secured lender will agree to the value and a reduced value of its claim, it should provide a positive ballot voting for the Plan. This could lead to ultimate confirmation of the Plan.

Adversary Proceedings

Frequently, the debtor in possession will institute a lawsuit known as an adversary proceeding to recover money or property for the estate.  These proceedings may take the form of lien avoidance actions, actions to avoid preferences, actions to avoid fraudulent transfers, or actions to avoid post-petition transfers.

Creditors may also initiate adversary proceedings by filing complaints to determine the validity or priority of a lien, revoke an order confirming a plan, determine the dischargeability of a debt, obtain an injunction, or subordinate a claim of another creditor.

Often, if a credit card or credit line is used shortly before filing bankruptcy (within 90 days), a creditor may file an adversary proceeding claiming that the debt is not dischargeable in bankruptcy since the debtor took the money knowing that he or she was going to file bankruptcy shortly thereafter.

In other words, the debtor knew that he was not going to repay the debt at the time that he took the money.  Another common adversary proceeding is to challenge the validity of a lien which a creditor asserts within the bankruptcy.

Equity Security Holders

An equity security holder is a holder of an equity security of the debtor.  Examples of an equity security are a share in a corporation, an interest of a limited partner in a limited partnership, or a right to purchase, sell, or subscribe to a share or interest of a share in a corporation or an interest in a limited partnership.  11 U.S.C. 101(16), (17).

An equity security holder may vote on the plan of reorganization and may file a proof of interest rather than a proof of claim.  A proof of interest is deemed filed for any interest that appears in the debtor’s schedules, unless it is scheduled as “disputed,” “contingent,” or “unliquidated.”  11 U.S.C. 1111.

An equity security holder whose interest is not scheduled or is scheduled as disputed, contingent, or unliquidated must file a proof of interest in order to be treated as a creditor for purposes of voting on the plan and distribution under it.  Fed. R. Bankr. P. 3003(c)(2).

A properly filed proof of interest supercedes any scheduling of that interest.  Fed. R. Bankr. P. 3003(c)(4).  Generally, most of the provisions that apply to proofs of claims are also applicable to proofs of interest.

The Plan of Reorganization

The Bankruptcy Code provides that a chapter 11 plan must designate classes of claims and interests for treatment under the reorganization.  Generally, a plan will classify claim holders as “secured creditors,” “unsecured creditors entitled to priority,” “general unsecured creditors,” and “equity security holders.”

Under 1126(c) of the Bankruptcy Code, an entire class of claims is deemed to accept a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class.

Under section 1129(a)(10), if there are impaired classes of claims, the court cannot confirm a plan unless it has been accepted by at least one class of non-insiders who hold impaired claims (i.e. claims that are not going to be paid completely or where there legal or equitable rights are altered in some way).  Holders of unimpaired claims (claims are not altered in any way) are deemed to have accepted the plan.

Under section 1127(a) of the Bankruptcy Code, the debtor may modify the plan at any time before confirmation, but the plan as modified must meet all the requirements of chapter 11.

When there is a proposed modification after balloting has been conducted, and the court finds after a hearing that the proposed modification does not adversely affect the treatment of any creditor who has not accepted the modification in writing, the modification is deemed to have been accepted by all creditors who previously accepted the plan. Fed. R. Bankr. P. 3019.  If it is determined that the proposed modification does have an adverse effect on the claims of non-consenting creditors, then another balloting must take place.

Any party in interest ay file an objection to confirmation of the plan.

The Bankruptcy Code requires the court, after notice, to hold a hearing on confirmation of the plan.  If no objection to confirmation has been timely filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to the law.  Fed. R. Bankr. P. 3020(b)(2).

Before confirmation can be granted, the court must be satisfied that there has been compliance with all the other requirements of confirmation set forth in section 1129 of the Bankruptcy Code, even in the absence of any objections.

In order to confirm the plan, the court must find, among other things, that (1) the plan is feasible; (2) it is proposed in good faith; and (3) the plan and the proponent of the plan are in compliance with the Bankruptcy Code.

In order to satisfy the feasibility requirement, the court must find that confirmation of the plan is not likely to be followed by liquidation (unless the plan is a liquidating plan) or the need for further financial reorganization.

One of the ways that the court determines whether the plan is feasible is by reviewing the debtor’s DIP accounts to determine their present balances and to estimate their balances at the time of the Effective Date of the Chapter 11 Plan which comes shortly after Confirmation.

The Final Decree

A final decree closing the case must be entered after the estate has been “fully administered.” Fed R. Bankr. P. 3022.  Local bankruptcy court policies generally determine when the final decree is entered and the case closed.

Generally speaking, we seek to close our client’s cases and obtain the final decree after a plan payment has been made.  Upon closing the case, the debtor no longer files monthly accounting statements with the U.S. Trustee and no longer pays quarterly trustee fees.

The Chapter 11 Debtor in Possession

In contrast to Chapter 11 above, Chapter 7 governs the process of a liquidation bankruptcy. In Chapter 7, the business ceases operations, a trustee sells all of its assets, and then distributes the proceeds to its creditors.

Any residual amount is returned to the owners of the company.   In the case of a personal Chapter 7, the individual is seeking to eliminate past debts and obligations and move forward with a “fresh start.”

A Chapter 7 does not eliminate “secured debts.”  These are debts which are secured to particular real or personal property such as real estate or automobiles.  In cases such as these, the debtor typically returns these properties to the creditor in exchange for discharge of the related debt.   Also, a debtor cannot discharge certain tax liabilities pursuant to the Federal Code.   *Please note, however, that a debtor can retain his personal residence if he is current on the payments and can afford to keep the home with his own personal income.

If the debtor’s home has a 2nd loan, he cannot strip that loan from the residence.  In order to keep the residence, he must be current on both his 1st and 2nd loan and be able to maintain those payments or be able to come to an agreement with those lenders about making those payments current during the bankruptcy.

Again, this is known as a “liquidation” bankruptcy while Chapter 11 is known as a “re-organizational” bankruptcy.

The Automatic Stay

The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition.

A stay against creditor collection activities against the debtor in possession automatically goes into effect when the chapter 11 bankruptcy petition is filed.  11 U.S.C. 362(a).  The filing of a petition, however, does not operate as a stay for certain types of actions listed under 11 U.S.C. 362(b).

The purpose of the stay is to provide a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor’s financial situation.   Under specific circumstances, the secured creditor can obtain an order from the court granting relief from the automatic stay.

For example, when the debtor has no equity in the property (real or personal property) and the property is not necessary for an effective reorganization, the secured creditor can seek an order of the court lifting the stay to permit the creditor to foreclose on the property, sell it, and apply the proceeds to the debt.  11 U.S.C. 362(d).

Please note that when a debtor has no equity in the property the debtor must make “adequate protection” payments to the secured lender in order to keep the property during the course of the bankruptcy.

For example, if the property is a rental property, the Court may order that the debtor may retain the property during the bankruptcy based upon that debtor providing monthly”net rents” to the secured lender.

“Net rent” would be actual rent received less the actual operating expenses necessary for maintenance, upkeep, and retention of the property.

These expenses typically include management fees, Home Owner Association fees, real estate taxes, hazard insurance, and actual maintenance expenses.

The Bankruptcy Code permits applications to be made by certain professionals during the case.  Thus, a trustee, a debtor’s attorney, or any professional person appointed or approved by the court may apply to the court at intervals of 120 days for interim compensation and reimbursement payments.

Cash Collateral and Adequate Protection

First, the debtor in possession may use, sell, or lease property of the bankruptcy estate in the ordinary course of its business, without prior approval, unless the court orders otherwise. 11 U.S.C. 363(c).  If the intended use is outside the ordinary course of its business, the debtor must obtain permission from the court.   Otherwise, at the very beginning of the case, certain important issues arise for the debtor in possession.

A debtor in possession may not use “cash collateral” without the consent of the secured creditor or authorization by the court.  This principle is based upon the concept that, if a lender has a security interest in property of the estate, that the debtor in possession cannot use the cash derived from that property unless the interests of the secured creditor are protected.  In other words, the secured creditor should be given “adequate protection” in the assets from which the debtor in possession wishes to derive a cash or financial benefit.

For example, in a rental property from which the debtor in possession wishes to take rents to maintain that property, the lender is typically entitled to receive the “net rents” from the property in order to provide it with adequate protection for its secured interest on the property.

In order for a debtor in possession to use cash collateral, he must file a motion requesting an order from the court authorizing the use of the cash collateral.  Prior to consent of the secured creditor or court authorization to use cash collateral, the debtor in possession must segregate and account for all cash collateral in its possession and not take those funds for personal use.  11 U.S.C. 363(c)(4).

Adequate protection may be required to protect the value of the creditor’s interest in the property being used by the debtor in possession.  This is especially important where there the value of the property is decreasing.

The debtor in possession may make periodic or lump sum cash payments, or provide an additional or replacement lien that will result in the creditor’s property interest being adequately protected.  11 U.S.C. 361.

When a chapter 11 debtor needs operating capital, it may be able to obtain it from a lender by giving the lender a court-approved “superpriority” over other unsecured creditors or a lien on property of the estate.  11 U.S.C. 364.

Assuming your own real properties as part of your estate which are secured with financing, we will file motions for cash collateral very shortly after filing your bankruptcy to obtain court permission to use the property’s cash collateral and to provide the lender with adequate protection for its mortgage.

Claims

The Bankruptcy Code defines a claim as (1) the right to payment; (2) or a right to an equitable remedy for a failure of performance if the breach gives rise to a right to payment.  11 U.S.C. 101(5).

Generally, any creditor whose claim is not scheduled (i.e. listed by the debtor on the debtor’s schedules) or is scheduled as “disputed,” “contingent,” or “unliquidated” must file a proof of claim and attach evidence documenting the claim in order to be treated as a creditor for purposes of voting on the plan and distribution under it.

Fed. R. Bankr. P. 3003(c)(2).   But filing a proof of claim is not necessary if the creditor’s claim is scheduled but is NOT listed as disputed, contingent, or unliquidated by the debtor because the debtor’s schedules are deemed to constitute evidence of the validity and amount of those claims.  11 U.S.C. 1111.

If a scheduled creditor chooses to file a claim, a properly filed proof of claim supercedes any scheduling of that claim.  Fed. R. Bankr. P. 3003(c)(4).  It is the responsibility of the creditor to determine whether the claim is accurately listed on the debtor’s schedules.

The debtor must provide notification to those creditors whose names are added and whose claims are listed as a result of an amendment to the schedules.

The notification also should advise such creditors of their right to file proofs of claim and that their failure to do so may prevent them from voting upon the debtor’s plan or reorganization or participating in any distribution under that plan.

When a debtor amends the schedules of liabilities to add a creditor or change the status of any claims to disputed, contingent, or unliquidated, the debtor must provide notice of the amendment to any entity affected.  Fed. R. Bankr. P. 1009(a).

The Disclosure Statement

Generally, the debtor in possession must file and get court approval of a written disclosure statement before there can be a vote on the plan of reorganization.

The disclosure statement must provide “adequate information” concerning the affairs of the debtor to enable the holder or a claim or interest to make an informed judgment about the plan.  11 U.S.C. 1125.

Acceptance or rejection of a plan usually cannot be solicited until the court has first approved the written disclosure statement.  11 U.S.C. 1125(b).   Upon approval of the disclosure statement, the debtor must mail the following to the U.S. Trustee and all creditors and equity security holders: (1) the plan; (2) the disclosure statement approved by the court; (3) notice of the time within which acceptances and rejections of the plan may be filed; and (4) such other information as the court may direct including any opinion of the court approving the disclosure statement.  Fed. R. Bankr. P. 3017(d).

In addition, the debtor must mail to the creditors and equity security holders entitled to vote on the plan: (1) notice of the time fixed for filing objections; (2) notice of the date and time for the hearing on confirmation of the plan; and (3) a ballot for accepting or rejecting the plan.

This is all subject to further requirements as may be set forth within the Fed. R. Bankr. P.

We will file the Disclosure Statement on your behalf and provide the “adequate information” as provided by the court.  In some instances, at the initial hearing, the court provides that we should include additional information in order to fully satisfy the requirement of adequate information for creditors.

We therefore, if necessary, prepare an amended disclosure statement and move towards confirmation of your chapter 11 plan.

The Plan of Reorganization

The Bankruptcy Code provides that a chapter 11 plan must designate classes of claims and interests for treatment under the reorganization.  Generally, a plan will classify claim holders as “secured creditors,” “unsecured creditors entitled to priority,” “general unsecured creditors,” and “equity security holders.”

Under 1126(c) of the Bankruptcy Code, an entire class of claims is deemed to accept a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class.

Under section 1129(a)(10), if there are impaired classes of claims, the court cannot confirm a plan unless it has been accepted by at least one class of non-insiders who hold impaired claims (i.e. claims that are not going to be paid completely or where there legal or equitable rights are altered in some way).

Holders of unimpaired claims (claims are not altered in any way) are deemed to have accepted the plan.

Under section 1127(a) of the Bankruptcy Code, the debtor may modify the plan at any time before confirmation, but the plan as modified must meet all the requirements of chapter 11.

When there is a proposed modification after balloting has been conducted, and the court finds after a hearing that the proposed modification does not adversely affect the treatment of any creditor who has not accepted the modification in writing, the modification is deemed to have been accepted by all creditors who previously accepted the plan. Fed. R. Bankr. P. 3019.  If it is determined that the proposed modification does have an adverse effect on the claims of non-consenting creditors, then another balloting must take place.

Any party in interest ay file an objection to confirmation of the plan.

The Bankruptcy Code requires the court, after notice, to hold a hearing on confirmation of the plan.

If no objection to confirmation has been timely filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to the law.  Fed. R. Bankr. P. 3020(b)(2).

Before confirmation can be granted, the court must be satisfied that there has been compliance with all the other requirements of confirmation set forth in section 1129 of the Bankruptcy Code, even in the absence of any objections.

In order to confirm the plan, the court must find, among other things, that (1) the plan is feasible; (2) it is proposed in good faith; and (3) the plan and the proponent of the plan are in compliance with the Bankruptcy Code.

In order to satisfy the feasibility requirement, the court must find that confirmation of the plan is not likely to be followed by liquidation (unless the plan is a liquidating plan) or the need for further financial reorganization.

One of the ways that the court determines whether the plan is feasible is by reviewing the debtor’s DIP accounts to determine their present balances and to estimate their balances at the time of the Effective Date of the Chapter 11 Plan which comes shortly after Confirmation.

The Discharge

11 U.S.C. 1141(d)(1) generally provides that confirmation of a plan discharges a debtor from any debt that arose before the date of confirmation.  After the plan is confirmed, the debtor is required to make plan payments and is bound by the provisions of the plan of reorganization.  The confirmed plan creates new contractual rights, replacing or superseding pre-bankruptcy contracts.

Confirmation of the plan discharges a corporation from most types of pre-petition debts.

Confirmation does not discharge an individual from debts deemed non-dischargeable by section 523 of the Bankruptcy Code or, except in limited circumstances, from debts set forth within the plan until all payments have been made pursuant to the Plan.  Plan payments are typically scheduled for 60 months during which time all unsecured debt is scheduled for repayment.  Following such repayment, the debtor may generally apply for a formal discharge of his chapter 11 bankruptcy.

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