What Is the Disclosure Statement in Chapter 11 Bankruptcy?

The disclosure statement in a Chapter 11 bankruptcy case is designed to give creditors adequate information about the debtors finances.

By , J.D. · California Western School of Law

If you file for Chapter 11 bankruptcy, one of the documents you'll file with the court is a disclosure statement. The disclosure statement provides "adequate information" about your affairs so creditors can make an informed decision about your reorganization plan. Read on to learn more about the disclosure statement in Chapter 11 bankruptcy.

What Is Chapter 11 Bankruptcy?

Chapter 11 is a type of bankruptcy proceeding designed primarily to allow businesses to retain control of their assets and continue operating while reorganizing their debts through a bankruptcy plan. However, individuals who have too much debt to qualify for Chapter 13 bankruptcy are also allowed to file for Chapter 11.

A Chapter 11 debtor, known as a "debtor in possession," has possession and control over its assets as opposed to a bankruptcy trustee, as is the case in other chapters. In most cases, a trustee is never appointed in a Chapter 11 case unless the court believes there is cause to name one (such as fraud or mismanagement). However, the U.S. Trustee still oversees the Chapter 11 bankruptcy process and monitors the operation of the business and filing of all required reports with the court.

Keep in mind that Chapter 11 bankruptcy can be extremely complicated. As a result, consider talking to an attorney specializing in Chapter 11 bankruptcy before filing your case.

The Chapter 11 Bankruptcy Disclosure Statement

When you file for Chapter 11 bankruptcy, you must file a disclosure statement with the court. The disclosure statement must provide adequate information about your financial affairs to allow your creditors to make an informed decision about whether to accept or reject your plan. Once you file your disclosure statement, the court will hold a hearing to approve or reject it. In most cases, your plan can't be accepted or rejected until the court first approves your disclosure statement.

What Information Should You Provide in the Disclosure Statement?

It will depend on the nature, history, and size of the Chapter 11 debtor. In certain small business cases, the bankruptcy court may even decide that a separate disclosure statement is not needed because the plan of reorganization itself provides enough information. Bankruptcy courts have broad discretion when determining whether a disclosure statement should be approved.

However, the following are some of the typical items found in a disclosure statement:

  • history of the debtor
  • circumstances that caused the bankruptcy filing as well as other significant events
  • summary of the reorganization plan
  • description and value of the debtor's assets
  • description of claims and liabilities and how they are treated in the plan
  • tax consequences of the reorganization plan
  • plan confirmation procedures and requirements
  • feasibility of the plan
  • comparison with Chapter 7 liquidation, and
  • any other information necessary for creditors to make an informed judgment about the plan.
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