In Pennsylvania, as in other jurisdictions, the primary goal of chapter 11 bankruptcy is to restructure a business’s debts to improve cash flow and maintain operations. This is achieved through a formal document called the chapter 11 plan of reorganization, which may reduce the debt balance, extend repayment terms, or lower interest rates.
Who Can File the Plan?
At the start of a Chapter 11 case, the debtor enjoys the exclusive right to file a plan. This exclusivity period lasts 120 days in a standard chapter 11 case, and 180 days when an eligible debtor elects to be treated as small business under subchapter V.
If the debtor fails to file a plan within the exclusivity period, creditors or other parties in interest can propose their own plans—but this rarely happens. In the majority of cases, the debtor remains the plan proponent.
The Role of the Disclosure Statement
Before creditors vote, the debtor usually must file a disclosure statement explaining the financial details behind the chapter 11 plan. The bankruptcy court—whether in Philadelphia, Harrisburg, Pittsburgh, or another district—must determine that the disclosure statement contains “adequate information” under 11 U.S.C. § 1125.
Only after the court approves the disclosure statement will creditors receive ballots and the proposed plan for voting.
How the Voting Process Works
To confirm the plan, at least one impaired class of creditors (i.e., a class whose legal rights are being changed) must vote to accept the Plan. Acceptance of an impaired class is requirement for plan confirmation under section 1129(a)(10) of the Bankruptcy Code.
Voting by Class
Generally, the proposed plan will separately classify similar creditors for voting and treatment purposes. Typical classifications often include secured creditors (e.g., mortgage or equipment lenders) and general unsecured creditors (e.g., suppliers, credit card issuers).
A class is considered to have accepted the plan if it is accepted by (i) at least two-thirds in dollar amount, and (ii) more than half the number of creditors in the class returning a ballot. 11 U.S.C. § 1126.
Example in Practice
Imagine a small manufacturer in Pittsburgh, Pennsylvania who is indebted to four unsecured creditors a total of $100,000:
- Creditor A: $10,000
- Creditor B: $15,000
- Creditor C: $25,000
- Creditor D: $50,000
The chapter 11 plan classifies those four creditors into a single class of general unsecured creditors. If only Creditor A votes in favor and the others don’t vote at all, the class may still be deemed to have accepted the Plan, because only the ballots submitted are counted. Interestingly, Creditor D alone is empowered to reject the plan for the class even if the other three creditors vote in favor of confirmation, since the simple majority requirement would be met but the requirement of two-thirds in dollar amount would not be satisfied.
Pennsylvania Court Perspective
Bankruptcy judges in the Eastern, Middle, and Western Districts of Pennsylvania regularly review chapter 11 plans for compliance with the technical and practical requirements for confirmation. Even if the voting meets the minimum standards, the court may scrutinize issues of fairness, feasibility, and good faith—especially in small business reorganizations.
Final Thoughts
The chapter 11 Plan and voting process are technical but essential to any successful reorganization. If you’re filing or responding to a chapter 11 case in Pennsylvania, it’s critical to understand the interplay between the United States Bankruptcy Code , the Federal Rules of Bankruptcy Procedure, and applicable local rules and court procedures.
Need Guidance?
The professionals at Robleto Kuruce can help you navigate chapter 11 from start to finish. Contact us today to schedule a free consultation. (412) 925-8194
