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The Chapter 11 exclusivity period

Business owners and executives in Salem looking to save their companies from going under due to massive debts may view a Chapter 11 bankruptcy as their most viable option for doing so. Thus unique form of debt relief may allow a company’s leadership to reorganize itself in an effort to better address its financial needs and concerns going forward. Yet seeking reorganization through a Chapter 11 can be a very complex process, one that, if managed incorrectly, could potentially serve to exacerbate a company’s struggles.

Once a debtor has petitioned the court for Chapter 11 protection, it then enters into a period where the court and its creditors will wait for it to present a reorganization plan for approval. According to Subchapter II Section 1121(b) of Chapter 11 of the U.S. Bankruptcy Code, this exclusivity period lasts for 120 days from the date the initial petition was filed. During this time, only the debtor may present any plan regarding its reorganization going forward. The website for the United States Courts states that if needed, the court may choose to extend this period up to 300 days for small business cases, or 18 months for all other filings.

To keep Chapter 11 cases from being drawn unnecessarily, however, the law also allows competing plans to be filed by other interested parties to the case. These may be:

  •          The bankruptcy trustee
  •          An individual creditor or  creditor’s committee
  •          Any equity security holder or a security holder’s committee

Certain guidelines must first be met for a competing claim to be filed. A bankruptcy trustee must have already been appointed to the case, and a creditor must have failed to present a plan within its 120-day exclusivity period, or failed to be granted approval for a plan within 180 days of the original petition date.  

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