CIRA CIRA Bankruptcy & Restructuring Procedures 1 — Questions and Answers
Question 1: What is the primary purpose of the 'automatic stay' that takes effect upon a Chapter 11 bankruptcy filing?
- To immediately halt most collection actions and lawsuits against the debtor (Correct answer)
- To freeze the debtor's management in place permanently
- To prohibit the debtor from paying any employees
- To require all vendors to continue supplying the debtor
Correct answer: To immediately halt most collection actions and lawsuits against the debtor
The automatic stay under 11 U.S.C. § 362 immediately stops most creditor collection efforts, giving the debtor breathing room to reorganize without constant creditor pressure.
Question 2: Which party typically files a 'proof of claim' in a Chapter 11 bankruptcy case?
- A creditor asserting a right to payment from the debtor's estate (Correct answer)
- The debtor's management team
- The U.S. Trustee's office
- The bankruptcy court judge
Correct answer: A creditor asserting a right to payment from the debtor's estate
Creditors file proofs of claim to formally assert the amount they are owed by the debtor, establishing their right to participate in plan distributions.
Question 3: In a Chapter 11 case, what is the 'exclusivity period'?
- The window during which only the debtor may file a plan of reorganization (Correct answer)
- The time creditors have to submit competing plans before the debtor files
- The period during which the automatic stay is absolute with no exceptions
- The deadline for the debtor to assume or reject executory contracts
Correct answer: The window during which only the debtor may file a plan of reorganization
The exclusivity period (initially 120 days) gives the debtor the sole right to propose a reorganization plan, preventing creditors from immediately introducing competing plans.
Question 4: Which of the following best describes a 'prepackaged bankruptcy' (prepack)?
- A Chapter 11 filing where the reorganization plan is already voted on and approved by creditors before the petition is filed (Correct answer)
- A Chapter 7 liquidation plan prepared before filing
- A court-supervised auction conducted prior to the bankruptcy petition
- An out-of-court workout completed without any court involvement
Correct answer: A Chapter 11 filing where the reorganization plan is already voted on and approved by creditors before the petition is filed
In a prepack, the debtor solicits and obtains creditor votes on a restructuring plan before filing, dramatically shortening the time spent in bankruptcy court.
Question 5: Under the Bankruptcy Code, what is a 'preference payment'?
- A payment made to a creditor within 90 days before bankruptcy that gives that creditor more than it would have received in liquidation (Correct answer)
- A payment authorized by the bankruptcy court to a key vendor
- An administrative expense paid during Chapter 11 operations
- A dividend declared by the debtor's board prior to filing
Correct answer: A payment made to a creditor within 90 days before bankruptcy that gives that creditor more than it would have received in liquidation
Preference payments are transfers made to certain creditors shortly before bankruptcy that can be clawed back by the trustee to restore equality among similarly situated creditors.
Question 6: Which professional is appointed in a Chapter 11 case to represent the interests of unsecured creditors?
- The Official Committee of Unsecured Creditors (UCC) (Correct answer)
- The Debtor-in-Possession (DIP) lender
- The U.S. Trustee only
- The Examiner appointed by the court
Correct answer: The Official Committee of Unsecured Creditors (UCC)
The UCC is typically comprised of the largest unsecured creditors and has standing to investigate the debtor, review the plan, and negotiate on behalf of the unsecured creditor class.
CIRA CIRA Bankruptcy & Restructuring Procedures 1
What is the primary purpose of the 'automatic stay' that takes effect upon a Chapter 11 bankruptcy filing?