Several months ago, we provided a
summary of the bankruptcy process. This week, our post looks at
the basic
process involved when an insolvent person (which by definition
includes an individual and a corporation, among other
"persons") chooses to make a Division I proposal as an
alternative to bankruptcy.
In a Division I proposal, an insolvent person attempts to work
out a compromise to repay the insolvent person's debts. A
proposal, if accepted and performed, will typically provide
creditors with a better recovery than might otherwise be achieved
through the debtor's bankruptcy. The debtor also stands to
benefit since, unlike a bankruptcy, the proposal allows an
insolvent person to gain temporary financial shelter so as to
reorganize their financial affairs. For a corporate debtor, a
successful proposal may allow it to re-emerge at the end of the
proposal with its business operations still intact.
