What is an Impaired Creditor in Chapter 11 Bankruptcy?

Whenever a business or an individual files for Chapter 11 bankruptcy in South Florida, they will need to be aware of the term “impaired creditor” and how it will impact their bankruptcy case. There are many different types of creditors in bankruptcy cases. In a bankruptcy filing, you will come across the terms “secured creditor” (a creditor with a secured debt for which there is collateral, such as a mortgage or car loan), “unsecured creditor” (a creditor with an unsecured debt for which there is no collateral, such as credit card debt or medical debt), “priority creditor” (a creditor who must be repaid in full or as fully as possible, depending on the type of bankruptcy), and “non-priority creditor” (a creditor who is not prioritized for repaying debt owed). Another term that you will encounter in a Chapter 11 case is the “impaired creditor”

What is an impaired creditor, and how will the existence of one or more impaired creditors affect your Chapter 11 bankruptcy case? Our West Palm Beach bankruptcy lawyers can provide you with more information.

Defining an “Impaired Creditor” 

What is an “impaired creditor”? In short, this is a type of creditor whose claims are “impaired.” What does that mean? According to the United States Courts, it means a creditor “whose contractual rights are to be modified or who will be paid less than the full value of their claims under the plan.”

It is important to identify any impaired creditors when you or your business are filing for Chapter 11 bankruptcy because impaired creditors will vote on your proposed reorganization plan by ballot, and the court will collect and tally the ballots, and consider those in a confirmation hearing “to determine whether to confirm the plan.”

Understanding the Position of Impaired Creditors in Your Chapter 11 Filing

In order to understand why an impaired creditor will play a role in your Chapter 11 filing, it is essential to understand how Chapter 11 cases work. More specifically, you will need to understand how the reorganization plan gets confirmed, allowing the debtor to go through and complete the terms of the bankruptcy reorganization plan.

The length of a Chapter 11 reorganization plan will depend on the specific facts of the case, but the length can be anywhere from months to many years. As part of a Chapter 11 bankruptcy plan, all priority creditors and secured creditors will typically need to be repaid in full over the length of the reorganization plan. Depending on the amount of the debts and the debtor’s financial circumstances, non-priority unsecured debts may be eligible for discharge at the end of the reorganization plan. These are typically the impaired creditors, those who hold non-priority unsecured debts and will either be repaid only partially or not at all.

Contact Our West Palm Beach Bankruptcy Attorneys Today

If you are planning to file for Chapter 11 bankruptcy, it will be important to have an experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan Delaney & Eller, PLLC working with you throughout your case. Having your Chapter 11 plan confirmed will be crucial, and you will want to work with an attorney to ensure that your plan meets all requirements and is likely to be acceptable to enough impaired creditors. Contact us today to get started on your Chapter 11 bankruptcy filing.

Source:

uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics