Chapter 11 Discharge
For business debtors, Section 1141(d)(1) generally provides that confirmation of a reorganization plan discharges a debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor is required to make plan payments and both the debtor and its creditors and other parties in interest are bound by the provisions of the reorganization plan. The confirmed plan creates new contractual rights, replacing or superseding pre-bankruptcy contracts. However, if the debtor chooses to liquidate under Chapter 11, then there is no discharge — the business debtor simply ceases to exist.
Individual debtors do not receive a discharge at confirmation, but only after the plan is completed successfully. Furthermore, nondischargeable debts listed under Section 523 of the Bankruptcy Code are also not dischargeable under Chapter 11. 11 U.S.C. § 1141(d)(5) However, an individual debtor that chooses to liquidate under Chapter 11 does receive a discharge after the liquidation plan is completed, unless grounds would exist for denying the debtor a discharge if the case were proceeding under chapter 7 instead of chapter 11. 11 U.S.C. §§ 727(a), 1141(d)
Notwithstanding the entry of the confirmation order, the court has the authority to issue any other order necessary to administer the estate. Fed. R. Bankr. P. 3020(d) This authority would include the post-confirmation determination of objections to claims or adversary proceedings, which must be resolved before a plan can be fully consummated. Sections 1106(a)(7) and 1107(a) of the Bankruptcy Code require a debtor in possession or a trustee to report on the progress made in implementing a plan after confirmation. A chapter 11 trustee or debtor in possession has a number of responsibilities to perform after confirmation, including consummating the plan, reporting on the status of consummation, and applying for a final decree.
Although reorganization plans can be modified after confirmation, it is unusual because the debtor in possession begins effecting the plan immediately, making it difficult to change while the plan is operative. By the time the court gets to hear an objection or an appeal, much of the plan may have already been performed, leaving objections or appeals moot.
However, if an objection or appeal is filed shortly after the plan confirmation, before substantial performance under the plan, the proponent of a plan may modify the plan if the modified plan would meet certain Bankruptcy Code requirements. 11 U.S.C. § 1127(b) A modified post-confirmation plan in a chapter 11 case becomes the plan only "if circumstances warrant such modification" and the court, after notice and hearing, confirms the plan as modified. If the debtor is an individual, the plan may be modified post-confirmation upon the request of the debtor, the case trustee, the U.S. trustee, or the holder of an allowed unsecured claim to make adjustments to payments due under the plan. 11 U.S.C. § 1127(e)
When the chapter 11 reorganization case is completed, the court, on its own motion or on motion of a party in interest, shall enter a final decree closing the case. Fed. R. Bankr. P. 3022 Local bankruptcy court policies generally determine when the final decree is entered and the case closed.
Chapter 11 Failure
If the debtor fails to carry out the plan, or seems unlikely to, then the Chapter 11 case may be dismissed or converted to Chapter 7. If the debtor failed to supply important information in its bankruptcy petition or in the Chapter 11 plan, and the plan had already be confirmed, then the confirmation may be revoked.
Dismissal or Conversion to Chapter 7
A debtor in a case under chapter 11 has a one-time absolute right to convert the chapter 11 case to a case under chapter 7 unless:
- the debtor is not a debtor in possession;
- the case originally was commenced as an involuntary case under chapter 11; or
- the case was converted to a case under chapter 11 other than at the debtor's request. 11 U.S.C. § 1112(a)
A debtor in a chapter 11 case does not have an absolute right to have the case dismissed upon request.
A party in interest may file a motion to dismiss or convert a chapter 11 case to a chapter 7 case for cause. Generally, if cause is established after notice and hearing, the court must convert or dismiss the case (whichever is in the best interests of creditors and the estate) unless it specifically finds that the requested conversion or dismissal is not in the best interest of creditors and the estate. 11 U.S.C. § 1112(b) Alternatively, the court may decide that appointment of a chapter 11 trustee or an examiner is in the best interests of creditors and the estate. 11 U.S.C. § 1104(a)(3). Section 1112(b)(4) of the Bankruptcy Code sets forth several examples of cause that would support dismissal or conversion. For example, the moving party may establish cause by showing that there is substantial or continuing loss to the estate and the absence of a reasonable likelihood of rehabilitation; gross mismanagement of the estate; failure to maintain insurance that poses a risk to the estate or the public; or unauthorized use of cash collateral that is substantially harmful to a creditor.
Causes for dismissal or conversion also includes:
- an unexcused failure to timely comply with reporting and filing requirements;
- failure to file a disclosure statement or to file and confirm a plan within the time fixed by the Bankruptcy Code or order of the court;
- failure to timely provide information to the U.S. Trustee;
- failure to pay on time:
- failure to attend the meeting of creditors or attend a Fed. R. Bankr. P. 2004 examination without good cause;
- inability to consummate a confirmed plan;
- denial or revocation of confirmation;
However, Section 1112(c) of the Bankruptcy Code provides that the court is prohibited from converting a case involving a farmer or charitable institution to a liquidation case under chapter 7 unless the debtor requests the conversion.
Revocation of the Confirmation Order
Revocation of the confirmation order is an undoing or cancellation of the confirmation of a plan. A request for revocation of confirmation must be made by a party in interest within 180 days of confirmation. The court, after notice and hearing, may revoke a confirmation order "if and only if the confirmation order was procured by fraud. "11 U.S.C. § 1144