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Chapter 11 Bankruptcy allows a business to develop a plan of reorganization. The Chapter 11 bankruptcy reorganization plan must have certain mandatory provisions including a classification for all claims (secured vs. Unsecured Claim). All claims must be placed in a class with other claims which are substantially similar to one another.

To be considered unimpaired, a class must not alter the rights of the claim holders either legally, contractually or equitably (See 11 USC § 1124(1)). Under 11 USC § 1123(a)(4), and all claims of a particular class must be provided the same treatment under the Chapter 11 Bankruptcy plan (unless the holders of the claim have agreed to less favorable treatment).

If a claim is impaired the plan must identify a treatment for each impaired class. Classes which are not impaired are presumptively assumed to be accepted by the class and by claim holders which have a claim. The Chapter 11 Bankruptcy plan must also 1) outline the method for implementing the plan of reorganization 2) provide a provision for the Debtor corporation not allowing non-voting stock and 3) allow for director and officer selections which are consistent with interest of the creditors.

The Chapter 11 Bankruptcy reorganization plan is generally not accepted until after it has been accepted by the creditors. Under some conditions if a Chapter 11 Bankruptcy reorganization plans are not approved by the creditors they may be subsequently approved through a "cram down" (See Cramdown).

More Help on Impairment

  • Chapter 11 Bankruptcy - Unlike Chapter 7 Bankruptcy which liquidates the debtors non-exempt assets, Chapter 11 Bankruptcy allows the Debtor (which is generally a corporation or partnership) to restructure their debt obligations and continue to operate their business (although the business is supervised by the bankruptcy court and should be managed and operated for the benefit of the creditors). - read more

  • Cramdown - Cramdown is not a term outlined by the United States Bankruptcy Code but is a common term for allowing a Chapter 11, Chapter 12 or Chapter 13 Bankruptcy repayment schedules to be accepted over the objections of the creditors. - read more

  • Debtor - A debtor is an entity or person who owes a debt or a service to another person or entity which can also be called a Creditor. - read more

  • Unsecured Claim - An unsecured claim is a claim which is not backed by any collateral and which the creditor has no assurance of payment if the debtor defaults on their debt payments. - read more

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