Experienced Jackson Bankruptcy Attorney
The Chapter 11 Discharge and Final Decree
Chapter 11 debtors are subject to a lot of oversight while their reorganization plan is being negotiated. The business is not free to make its own decisions or to control its own operations because it owes a fiduciary duty to its creditors that must be protected by the Bankruptcy Court. Thus, certain business decisions including obtaining more debt are overseen by the Bankruptcy Court.
In many cases that oversight continues until a final decree is issued in a Chapter 11 bankruptcy case. A final decree is different than a bankruptcy discharge and the Chapter 11 discharge is different than a discharge in other areas of bankruptcy. Therefore, it is important for Chapter 11 debtors to understand the difference between the discharge and the final decree.
Discharge: Confirmation of the Reorganization Plan
In most cases, a Chapter 11 discharge occurs when the reorganization plan is confirmed. All of the debts that arose prior to the date the reorganization plan was confirmed are considered discharged and the debtor is obligated by the new terms of the reorganization plan.
There are a few exceptions to this general rule concerning Chapter 11 discharges. For example, the previous debts will not be discharged if: (1) The debtor is an individual and has not yet made all of the payments required by the reorganization plan; (2) The debtor is an individual and the debts are non-dischargeable debts (such as student loans or priority debts such as taxes, spousal support or child support); or (3) The debtor is a business and the Chapter 11 plan is a liquidation plan, rather than a straight reorganization plan. In this case a discharge will not occur until the liquidation has occurred and the proceeds have been distributed among the creditors according to the terms of the plan.
Final Decree: Completion of the Bankruptcy Case
The final decree well after a Chapter 11 bankruptcy case has been discharged. A final decree occurs once all of the elements of the bankruptcy reorganization plan have been implemented and completed. There is no set time frame for this and it often depends on the size of the business and the terms of the reorganization plan. In some cases, a final decree can occur months after a Chapter 11 discharge and in other cases it takes years to get the final decree.
Once there is a final Chapter 11 decree, the debtor is once again free to make autonomous business decisions and all obligations to debtors included in the reorganization plan are complete.
Both the bankruptcy discharge and final decree mark are important events in a Chapter 11 case. Yet, they impact a Chapter 11 debtor and creditors differently. It is, therefore, important for all parties to a Chapter 11 bankruptcy to understand how the terms apply to their specific case even before a bankruptcy petition is filed. An early and accurate understanding of the different milestone and potential completion of a Chapter 11 case can help you make an educated decision about whether or not to file for Chapter 11 protection.
