When Can a Creditor Object to a Bankruptcy Reorganization Plan?

 Posted on October 15, 2021 in Bankruptcy

When a debtor files for bankruptcy, this can put creditors in a difficult position. Loans from creditors to debtors are made with the presumption that the debtor will repay the amount that is owed. While bankruptcy may relieve debtors of their obligations to repay certain debts, it will also allow for some of these debts to be repaid. When an individual files for Chapter 13 bankruptcy, or when a business files for Chapter 11 bankruptcy, the debtor will propose a reorganization/repayment plan in which they will pay off certain debts. If this plan will not properly address some of the debts that are owed, creditors may object to the confirmation of the plan. By understanding when these objections can be made and the potential reasons for objecting, a creditor can ensure that its financial interests will be protected.

Issues Affection Objections to Confirmation

A creditor must have “standing” to object to the confirmation of a bankruptcy reorganization plan. Generally, a creditor will be able to object if they are a “party in interest,” meaning that they have a financial interest in the outcome of the bankruptcy case. A creditor must also be directly affected by the issues that are being challenged in the plan, and their objections must be based on the potential unfair losses that they may experience if the plan is confirmed.

Objections to confirmation will often be based on the best interests of the creditor. A reorganization plan must pay creditors at least the amount they would receive if the debtor’s assets were liquidated in a Chapter 7 bankruptcy. Creditors may also object on the basis that the amount of a debt has been understated, that certain priority debts have not been included in a reorganization plan, or that a debtor’s disposable income was calculated incorrectly. Objections may address the amount that will be repaid, the timing of payments, or the classification of debts.

It is important for creditors to file objections within the proper time frames. Creditors must be given at least 28 days’ notice before a confirmation hearing and 21 days’ notice before the deadline for filing objections. If a creditor fails to file an objection, they will usually be bound by the terms of a confirmed reorganization. Even if a plan contained illegal terms that violated the U.S. Bankruptcy Code, these terms will be enforceable once a plan is confirmed by a bankruptcy court.

Contact Our Chicago Creditors’ Rights in Bankruptcy Attorneys

At Dimand Walinski Law Offices, P.C., we provide representation to creditors in bankruptcy cases, ensuring that their rights will be protected. We can help you determine whether you can object to the confirmation of a bankruptcy reorganization plan, and we will work to ensure that you will be able to recover debts as much as possible. Contact our Chicago creditors’ rights lawyers at 312-704-0771 for assistance with bankruptcy and debt collection.

Sources:

https://restructuring.weil.com/breaking-the-code/section-1128b-objections-to-confirmation/

https://cdn.ymaws.com/www.dcba.org/resource/resmgr/Bankruptcy/4-23-15_Handouts-Chapter_13.pdf

https://foxrothschild.gjassets.com/content/uploads/2020/02/The-Perils-of-Plan-Confirmation.pdf