University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

489

Pages:

2
Author:

bratrochanter

This section covers key aspects of Chapter 11 and Chapter 13 bankruptcy, as well as special rules for family farmers and cross-border insolvency, supported by case studies. Chapter 11: Reorganization for Businesses 1. Purpose and Process: Chapter 11 is designed to allow businesses facing financial difficulties to reorganize rather than liquidate. The goal is to enable a company to restructure its debts, continue operations, and eventually emerge financially stable. 2. Requirements for Reorganization Plan: o Plans must be feasible, ensuring reasonable success likelihood without resulting in further liquidation. o A plan can be confirmed either by creditor approval or via a “cram down” if the court finds it fair and equitable to dissenting creditors. 3. Case Example – In re Made in Detroit: o Detroit’s reorganization plan was denied because it relied on speculative financing and overly optimistic property valuations, failing the feasibility standard. 4. Specific Rules: o Nonresidential Real Property: Chapter 11 requires prompt decisions on commercial lease assumptions, with a maximum extension of 120 days plus 90 with cause. o Collective Bargaining: Companies cannot unilaterally modify labor agreements in reorganization; instead, they must undergo a structured negotiation process, balancing fairness for both the company and employees. Chapter 12: Family Farmers and Fishermen 1. Purpose and Eligibility: Chapter 12 provides special relief for family farmers and fishermen with steady incomes, allowing them to reorganize their finances without risking liquidation. o Farmers and fishermen qualify if 80% of their debt is related to their operations, with debt caps specific to each group. o Plan Requirements: A Chapter 12 plan must propose repayment of unsecured debts at least to liquidation value, with the possibility of cram-down confirmation if objected to by unsecured creditors. Transnational Insolvency Proceedings  With increasing international trade, transnational insolvency poses complex challenges. Historically managed by territoriality (each country handling local assets independently), newer frameworks like universalism and the UN’s Model Law on Cross-Border Insolvency aim for coordinated global responses. Chapter 13: Consumer Debt Adjustments 1. Purpose: Chapter 13 assists individuals with regular incomes in managing debts while avoiding the harsher stigma of Chapter 7 liquidation. o Eligibility: Individuals with secured debts below $1,081,400 and unsecured debts below $360,475 qualify. 2. Repayment Plan Requirements: o Debtors must apply disposable income to creditor payments over a period (up to 5 years if above median state income). o Creditors must receive at least what they would under Chapter 7. 3. Case Example – In re Burt: o The court objected to the debtor’s Chapter 13 plan that attempted to include negative equity from a prior vehicle loan, as it did not meet the standards for cramming down secured interests. Each bankruptcy chapter offers tailored approaches for various debtors, balancing relief with creditor rights and ensuring fair processes for financial recovery.