In a Chapter 11 bankruptcy, the court must approve a reorganization plan before the business can move forward with its recovery. This document serves as a contract between a business and its creditors, outlining how the company will manage its debts while staying open. A business owner typically has 120 days to provide this plan.
An effective plan must outline all debts and explain how the business will repay them. This clarity helps the plan gain approval from creditors and the court.
A comprehensive picture of your business’ finances
A reorganization plan must detail the business’ current financial health and future goals. This shows creditors and the court that the business understands its situation and has a realistic plan to improve. The plan should outline the business’:
- Current assets and debts
- Recent income and expenses
- Expected future earnings
- Specific financial targets
- Strategies to reach these targets
This transparency helps creditors understand how the business can pay its debts. As a result, they may be more likely to support the reorganization plan.
A plan on how the business will pay its debts
A debt structure outlines all the money a business owes and to whom. Including this in a reorganization plan is crucial because it shows a clear picture of the company’s financial obligations. It also helps creditors understand their position and the likelihood of repayment.
A comprehensive debt structure should include the following:
- A list of all creditors
- The amount owed to each creditor
- The type of debt (secured, unsecured, priority)
- Interest rates and payment terms
- Any collateral tied to the debts
This detailed breakdown also helps the court assess whether the proposed reorganization plan is fair and feasible for all parties involved.
Proposed operational changes
A reorganization plan must outline changes in how the company will operate in order to become profitable again. These may include strategies such as:
- Cost-cutting measures
- Improving work processes
- Closing unprofitable locations
- Creating new products or services
- Restructuring management
These demonstrate that the business has a solid plan to recover. It also helps creditors, employees and the court understand how the business will operate differently to avoid future financial difficulties.
Recovery starts here
Your business’ financial struggles today do not have to define tomorrow. The path to financial stability starts with informed decisions. Make sure to seek legal counsel.