Chapter 11 Bankruptcy

Filing triggers an automatic stay — all creditor collection actions halt immediately. The debtor has an exclusivity period (initially 120 days, extendable to 18 months) to propose a plan of reorganization. During this time, the company secures DIP financing to fund operations, negotiates with creditor committees, and may sell assets under Section 363. Once a plan is filed, impaired creditor classes vote. If accepted (by more than half in number and two-thirds in dollar amount of each class), the court confirms the plan. The company then emerges from bankruptcy.

The debtor-in-possession runs the business day-to-day. The Official Committee of Unsecured Creditors (UCC) represents unsecured claimholders and has the right to investigate the debtor and challenge transactions. The U.S. Trustee oversees administrative aspects. Secured creditors negotiate directly based on their collateral value. DIP lenders provide new financing with super-priority status. Investment bankers and lawyers advise each constituency — often the largest expense in bankruptcy.

If not all impaired classes accept the plan, the debtor can seek 'cramdown' — court-imposed confirmation over the objection of dissenting classes. Cramdown requires that the plan does not discriminate unfairly, is fair and equitable (respects the absolute priority rule), and at least one impaired class has voted to accept. This mechanism prevents a single holdout creditor class from blocking a viable reorganization. Understanding cramdown is essential for restructuring interviews.