In a Chapter 11 bankruptcy, the individual or business filing bankruptcy (debtor) has the first opportunity to propose a reorganization plan—to reorganize the debtor’s operations and payment of debts. A Chapter 11 plan is an agreement between the debtor and its creditors as to how the debtor will operate and pay its debts going forward.

Chapter 11 plans often include downsizing of the debtor’s operations to reduce expenses, and renegotiation of debts. If the proposed reorganization plan is accepted by the court and the creditors, the bankruptcy process moves forward.

In Massachusetts, as in all states, Chapter 11 bankruptcy is governed by federal law under the U.S. Bankruptcy Code. Chapter 11 is typically used by businesses but can also be filed by individuals with substantial debts and assets. The debtor usually has a 120-day exclusivity period to propose a reorganization plan after filing for bankruptcy. This plan details how the debtor intends to restructure its business operations, reduce expenses, and handle its debts. The plan may involve downsizing business operations, renegotiating debts, or liquidating certain assets to pay creditors. Creditors and shareholders have the right to vote on the plan. If the plan is accepted by the required number of creditors and confirmed by the court, the debtor can proceed with the reorganization under the oversight of the bankruptcy court. If the debtor fails to propose an acceptable plan within the exclusivity period, creditors may propose competing plans. The goal of Chapter 11 is to allow the debtor to continue business operations while repaying creditors under more favorable terms, ultimately leading to financial recovery.