How do creditors get paid in a Chapter 11?
As with Chapter 13, a plan of reorganization provides for how creditors are treated. The debtor must submit its plan within 120 days of filing the case. If it does not file a plan, creditors may do so. Likewise, if the creditors do not consent to the debtor’s plan within 180 days of filing the case, creditors may submit their own plans. The plan must provide how various creditor classes will get paid. For example, there may be classes of general unsecured creditors, employees, and vendors. The plan will state how each class of creditors will be paid. The various creditor classes must approve the plan. If they do not, the debtor can ask the bankruptcy court to approve the plan over the objections of the creditors. This is called a “cram down.
