PO Box 230550 Encinitas, CA 92023 Phone 619-220-8900
Distressed Debt
Chapter 11 Bankruptcy is generally a reorganization of a company’s financial affairs and is commenced when a company files a petition with the U.S. Bankruptcy Court. After the petition has been filed, the company, now referred to as the debtor, usually operates as a debtor-in-possession where it continues to control and administer its own business affairs.
The bankruptcy code protects the debtor with an automatic stay against creditor actions, meaning that creditors owed money at the time the petition is filed are, under most circumstances, denied the right to enforce payment until the debtor has emerged from bankruptcy. This automatic stay is designed to allow the debtor to restructure and formulate a plan of reorganization.
A plan of reorganization outlines how the debtor intends to restructure its business, pay its debts, and emerge from bankruptcy. A plan of reorganization does not have to provide for the full payment of all pre-petition bankruptcy debts.
Some companies emerge from bankruptcy relatively quickly, while others remain in bankruptcy for a longer period of time depending on the complexity of the case. Information regarding a particular bankruptcy case can be obtained from the debtor, its counsel, the unsecured creditors’ committee, or the U.S. Bankruptcy Court.