A composition in bankruptcy refers to a legal agreement between a debtor and their creditors, where the debtor proposes a plan to repay a portion of their debts over a specified period of time. This plan must be approved by the bankruptcy court and requires the consent of a majority of the creditors. Once approved, the debtor is granted a discharge of the remaining debts upon successful completion of the repayment plan.
A composition in bankruptcy is a legal agreement between a debtor and their creditors to settle the debts for less than the full amount owed.
Any individual or business that is insolvent and unable to pay their debts in full can propose a composition in bankruptcy.
The debtor must submit a proposal to their creditors outlining the terms of the composition, and the creditors then vote on whether to accept or reject the proposal.
If the creditors accept the composition proposal, the debtor will make payments to the creditors according to the terms of the agreement, and the remaining debts will be discharged.
If the creditors reject the composition proposal, the debtor may need to consider other options, such as filing for Chapter 7 or Chapter 11 bankruptcy.
There are no specific eligibility requirements for proposing a composition in bankruptcy, but the debtor must be able to demonstrate their inability to pay their debts in full.
Once a composition in bankruptcy is approved by the creditors and the court, it generally cannot be modified unless there are exceptional circumstances.
The potential benefits of proposing a composition in bankruptcy include avoiding the liquidation of assets in a Chapter 7 bankruptcy and being able to retain control of the business in a Chapter 11 bankruptcy.
There are risks associated with proposing a composition in bankruptcy, such as the possibility of the proposal being rejected by the creditors and the potential impact on the debtor’s credit.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 5th April 2024.
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