The plan of reorganization is one of the most critical documents in a Chapter 11 bankruptcy proceeding. Even before declaring a default under a mortgage or deed of trust, a secured lender needs to plan ahead by considering, among other things (a) what remedies the lender has at each step of a bankruptcy proceeding; and (b) whether the borrower/debtor can, at each such step, propose a sufficient-enough plan of reorganization to prevent the lender from realizing upon those remedies. Such planning will also help the lender predict how long the bankruptcy proceeding is likely to take, what it is likely to cost, and what the lender's risks of adverse consequences, such as a cramdown, are. If nothing else, such planning will help the lender to determine what terms it should offer in workout negotiations.
As a Chapter 11 bankruptcy proceeding progresses, a secured lender will want to consider seeking in the following order in light to thedebtor's ability to then propose a sufficient-enough plan of reorganization: (a) a lift Stay, (b) a conversion or dismissal, and (c) counting the classifications and the votes to avoid a cramdown.
Continue reading "Steps a Secured Lender Should Consider in a Chapter 11 and the Role of a Proposed Plan of Reorganization at Each Step" »