Legal Definitions - bankruptcy plan

A bankruptcy plan is a comprehensive proposal outlining how an individual or organization will manage their financial difficulties and repay their debts under the supervision of a bankruptcy court. This detailed program is developed by the debtor (the person or entity owing money) or sometimes by their creditors (those owed money). It specifies how the debtor will either reorganize their finances to continue operating and rehabilitate their financial standing, or how their assets will be sold off (liquidated) to pay creditors. Crucially, this plan must be reviewed and approved by the bankruptcy court before it can be put into effect.

• Example 1 (Individual Rehabilitation):

  Sarah, an accountant, faced mounting credit card debt and a car loan after an unexpected medical emergency. She wants to keep her home and car but needs a structured way to pay off her creditors. Sarah files a Chapter 13 bankruptcy and proposes a bankruptcy plan to the court. Her plan details how she will make regular, affordable payments to a bankruptcy trustee over five years. These payments will cover a portion of her credit card debt and her car loan, allowing her to retain her assets while getting her finances back on track.

  This example illustrates a bankruptcy plan focused on an individual's rehabilitation and payment of debts through a structured repayment schedule, all subject to court approval.

• Example 2 (Small Business Continued Operation):

  "The Daily Grind," a local coffee shop, experienced a significant drop in revenue due to new competition and rising rent. They owe money to suppliers, their landlord, and a small business loan. They believe they can recover if they can restructure their debts. The owners of The Daily Grind file for Chapter 11 bankruptcy and submit a bankruptcy plan. Their plan proposes to renegotiate their lease terms, pay suppliers a reduced percentage of what they are owed over three years, and continue operating the coffee shop. They project increased revenue from a new marketing strategy to fund these payments.

  This example demonstrates a bankruptcy plan designed for a business's continued operation and rehabilitation, detailing how it will manage and pay its debts to various creditors, pending court approval.

• Example 3 (Corporate Liquidation):

  "Global Tech Solutions," a large software company, faced insurmountable legal judgments and a failed product launch, leading to severe financial distress. The company's leadership determined that continued operation was not viable. Global Tech Solutions files for Chapter 11 bankruptcy and proposes a bankruptcy plan that focuses on an orderly sale of its valuable intellectual property, office buildings, and other assets. The plan outlines the process for selling these assets and how the proceeds will be distributed among its secured creditors (like banks) and unsecured creditors (like bondholders and former employees owed severance).

  This illustrates a bankruptcy plan centered on the liquidation of a company's assets and the structured payment of debts to various creditor classes, all under court supervision, when rehabilitation is not feasible.