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What are impaired creditors?

Filing for bankruptcy does not necessarily put an end to your company. On the contrary, many businesses in Salem have used bankruptcy as a way to save themselves from mounting debt and start anew on firm financial ground. This happens thanks to the reorganization plan offered through a Chapter 11 bankruptcy. However, simply filing for a Chapter 11 does not automatically discharge all of your debts. One of the most important parts of the process is organizing your creditors into classes, who will in turn vote on whether or not to accept your reorganization plan. In doing this, there is one class of creditors you need to be concerned about: those considered to be “impaired.”

According to the website USCourts.gov, an impaired creditor is one who is asked accept less than what you currently owe to it. In your reorganization plan, there will be both impaired and unimpaired creditors, as well as ones who may not be listed as receiving any repayment at all. When it comes time to approve your plan, both unimpaired creditors and those receiving nothing are not allowed to vote. This is due to the fact that unimpaired creditors are not adversely affected by your bankruptcy case, and creditors receiving nothing are assumed to reject your reorganization plan. That leaves the fate of your case to your impaired creditors.

However, a unanimous vote from your company’s impaired creditors is not required to have your reorganization plan approved. You only need to have a 51 percent majority of your classes of creditors approve it. Yet before full conformation can be given by the court, it must be shown that the class members who did vote to approve your plan hold at least two-thirds of the total claim value of the individual classes they represent. 

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