Bankruptcy – Business and Individual Chapter 11 Reorganizations

A debtor is the business or individual that is the subject of a bankruptcy petition, usually filed voluntarily by the debtor, but sometimes filed involuntarily by a creditor or several creditors.

A secured creditor has a pre-bankruptcy claim against the debtor that is secured by a charge against or interest in property to secure payment of a debt or performance of an obligation – i.e., the creditor is secured by a lien.

An undersecured creditor has a pre-bankruptcy claim against the debtor that is secured by a charge against or interest in property to secure payment of a debt or performance of an obligation – i.e., the creditor is secured by a lien. However, the value of the property secured by the lien is not enough to fully satisfy the amount owed to the creditor. Thus, the creditor is partially secured and partially unsecured.

An unsecured creditor has a pre-bankruptcy claim against the debtor, but the creditor does not have any lien to secure payment of a debt or performance of an obligation. In bankruptcy, creditors can be unsecured, but also entitled to priority up to certain amounts over other unsecured creditors if their claim is of a particular type such as domestic support obligations; wages, salaries, and commissions; contributions to employee benefit plans; and specific types of money deposits. If a creditor is not entitled to any such priority, the creditor is sometimes called a general unsecured creditor.

An administrative expense claimant has a post-bankruptcy claim that, generally, helps preserve the debtor’s bankruptcy estate. Examples include wages, salaries, and commissions for services rendered after the commencement of the bankruptcy case; and post-bankruptcy taxes.

A Chapter 11 trustee can be appointed in a Chapter 11 case to replace the debtor’s management while the debtor is in Chapter 11, often when there is evidence of fraud, dishonesty, incompetence, or gross management in the affairs of the debtor by current management. Also, liquidating trustees can be appointed, usually through a confirmed plan of liquidation or similar mechanism.

A committee of unsecured creditors is a committee consisting of creditors that hold unsecured claims in a Chapter 11 case that generally look out for the interests of the unsecured creditor body as a whole. They have considerable powers, including rights related to consulting with the debtor or trustee concerning administration of the case, investigating any matter relevant to the case or to the formulation of a plan, and participating in the formulation of a plan.