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Simple English definitions for legal terms
bankruptcy plan
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A quick definition of bankruptcy plan:
A bankruptcy plan is a detailed plan created by a person or company who owes money to others. The plan explains how the person or company will pay back the money they owe and how they will continue to operate or close down their business. The plan must be approved by a special court before it can be put into action. Sometimes it is also called a plan of reorganization or a plan of rehabilitation. An arrangement with creditors is when the person or company agrees with their creditors on how to pay back the money they owe.
A more thorough explanation:
A bankruptcy plan is a detailed plan created by a debtor or their creditors to manage the debtor's rehabilitation, continued operation, or liquidation, and payment of debts. The plan must be approved by the bankruptcy court before it can be implemented.
For example, if a company files for Chapter 11 bankruptcy, they may create a plan of reorganization to outline how they will restructure their business and pay off their debts. The plan may include selling assets, renegotiating contracts, and seeking new financing.
In Chapter 13 bankruptcy, an individual may create a plan of rehabilitation to outline how they will repay their debts over a period of three to five years. The plan may include making regular payments to a trustee who will distribute the funds to creditors.
An arrangement with creditors is a similar concept, where a debtor agrees with their creditors on a settlement, satisfaction, or extension of time for payment of debts. This can be part of a bankruptcy plan or a separate agreement outside of bankruptcy.
Overall, a bankruptcy plan is a crucial tool for managing debt and ensuring that both debtors and creditors are treated fairly in the bankruptcy process.