The exclusivity period in Chapter 11 bankruptcy is generally 120 days for a debtor to file a reorganization plan. During this crucial time, the debtor holds the exclusive right to propose a plan for how their debts will be restructured and paid back to creditors.
Understanding the 120-Day Exclusivity
For most debtors, excluding "small business debtors," the initial period where only the debtor can propose a Chapter 11 plan is 120 days from the date the bankruptcy case is filed. This exclusive right is outlined in 11 U.S.C. 1121(b) of the U.S. Bankruptcy Code. This period is designed to give the debtor a critical window to negotiate with creditors, develop a viable reorganization plan, and secure support for it without immediate competition from other parties.
Key Aspects of the Exclusivity Period
The exclusivity period is a cornerstone of the Chapter 11 process, offering the debtor significant control over the initial stages of the reorganization.
- Debtor's Advantage: It provides the debtor with leverage in negotiations, as creditors cannot yet propose their own plans, which might be less favorable to the debtor's interests or business operations.
- Plan Development: It allows the debtor focused time to formulate a comprehensive plan that addresses various classes of creditors, asset valuations, and future business operations.
| Aspect | Details |
|---|---|
| **Standard Duration** | 120 days from the petition date. |
| **Who Has It** | The debtor, except for "small business debtors." |
| **Exclusive Right** | Only the debtor can file a reorganization plan during this time. |
| **Court's Role** | The court can **extend** or **reduce** this period. |
Modifications to the Exclusivity Period
While 120 days is the standard, this period is not set in stone. The bankruptcy court has the discretion to:
- Extend the Period: Courts often grant extensions, especially in large, complex cases with many creditors or intricate business structures. Reasons for extension typically include:
- The complexity of the case requiring more time for negotiations and plan formulation.
- Active and productive negotiations ongoing between the debtor and creditors.
- The debtor demonstrating good faith and progress towards a confirmable plan.
- For example, a major airline or automotive manufacturer undergoing Chapter 11 might receive multiple extensions due to the sheer scale of their operations and debt.
- Reduce the Period: Less commonly, a court may reduce the exclusivity period if:
- The debtor is acting in bad faith or unduly delaying the process.
- There is no progress being made towards a plan.
- Creditors demonstrate compelling reasons why they should be allowed to file a plan sooner.
Impact of Expiration
If the exclusivity period expires without the debtor filing a plan, or if the court terminates it, then any other "party in interest"—such as a creditors' committee, a trustee, or even an individual creditor—can file their own competing reorganization plan. This can significantly alter the dynamics of the Chapter 11 case, as the debtor loses sole control over the plan proposal process.
For more information on Chapter 11 bankruptcy basics, you can refer to resources from the United States Courts.
