Post-Confirmation Dismissal of Chapter 11 Bankruptcy Cases

On behalf of Macdonald Fernandez LLP posted in business and commercial bankruptcy on Friday, January 8, 2016.

Bankruptcy provides a safe haven for businesses going through tough times, but it is not free from risk. One risk is that a creditor or other party in interest may move for dismissal of the bankruptcy case. It is best to be informed of issues surrounding dismissal in advance and prepare to avoid or defend a dismissal motion.

This brief article highlights one often-overlooked factor in dismissal, which is the risk of dismissal after confirmation of a chapter 11 plan of reorganization. In large part, plan confirmation means emergence from bankruptcy and closure of the bankruptcy case. However, some businesses struggle to perform and make payments under the plan. This may result from a variety of factors, ranging from a temporary slowdown in business or an unexpected incident that prevents the business from operating to its full capacity. If plan payments are delinquent, a creditor may move for dismissal of the bankruptcy case.

If the business is in default or anticipates problems in advance, it is best to address the issue as early as possible and take action before creditors take action. Among other options, the business may move to modify the plan to provide more flexibility or otherwise account for new developments. By contrast, if the problem is not addressed, the business's only option may be to try for dismissal without prejudice, allowing for the possibility of filing a new bankruptcy case.

Creditors have a range of options themselves, including enforcing the obligation in state court or moving for dismissal of the bankruptcy case. For both sides, having an experienced bankruptcy attorney to bring or defend a motion to dismiss is crucial to asserting your rights.

Tags: Business and Commercial Bankruptcy

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