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 North Carolina, as in other states, Chapter 11 bankruptcy is governed by federal law under the United States Bankruptcy Code. This type of bankruptcy is designed for the reorganization of businesses, although individuals can also file for Chapter 11. The debtor usually has the exclusive right for 120 days to propose a reorganization plan after filing for bankruptcy. This plan details how the debtor intends to operate and settle its obligations moving forward. The plan may include strategies such as downsizing business operations to cut costs and renegotiating debts with creditors. Creditors and the bankruptcy court must approve the plan. If the plan is accepted, the debtor will make payments according to the plan's terms, which may last for several years. The court's confirmation of the plan binds the debtor and all creditors to its terms, allowing the debtor to reorganize its financial affairs while receiving protection from creditor actions.