The Basics of Chapter 11 Bankruptcy
Chapter 11 is the chapter of the Bankruptcy Code that provides for reorganization of debts. This bankruptcy chapter is referred to as a type of business bankruptcy because corporations and partnerships use it more often than individuals. However, it is possible for individuals to file for Chapter 11 bankruptcy.
If you are interested in filing for Chapter 11, you should try to gain a basic understanding of federal and state bankruptcy rules. In addition, you will want to contact a Chapter 11 bankruptcy attorney.
What Is Chapter 11 Bankruptcy?
Unlike Chapter 7 bankruptcy, which individuals use to liquidate their debts, or Chapter 13, which individuals use to reorganize their finances, Chapter 11 bankruptcy is primarily used by businesses.
Chapter 11 bankruptcy is similar to Chapter 13 bankruptcy in that it does allow the person or business filing for bankruptcy to reorganize in an effort to repay creditors over a period of time. (Creditors are the people or entities that a business or individual owes money to.) However, Chapter 11 bankruptcy does not have the debt limits that exist in Chapter 13 bankruptcy, nor does it require a means test as is the case in Chapter 7 bankruptcy. In fact, Chapter 11 bankruptcy may be the only option available to higher-income individuals with a substantial amount of debt.
How to File Chapter 11
To file for Chapter 11 bankruptcy, you will file a petition with the bankruptcy court in your area. This petition must be accompanied with forms that detail your assets, debts, expenses, and income.
You may not file for Chapter 11 if, during the 180 days before filing, a court dismissed an attempt to file for bankruptcy because you failed to appear before court or comply with court orders. You must also receive credit counseling from an approved credit-counseling agency no more than 180 days prior to filing for Chapter 11.
Once all fees associated with filing for bankruptcy are paid, you must submit a plan of reorganization. This plan must detail how you plans to address each debt you owe a creditor.
Creditors will get the opportunity to look over the plan and provide their opinions. Specifically, those creditors that are impaired (meaning that under your reorganization plan, they will lose money) will get a chance to vote on your plan. For the plan to continue on to the next stage of the bankruptcy process, the majority of impaired creditors must approve of your plan.
A court will then conduct a confirmation hearing to determine whether to allow the plan.
Benefits of Chapter 11 Bankruptcy
Chapter 11 does offer benefits that other forms of bankruptcy do not offer.
If you run a business and wish to file for Chapter 11, you will still be able to keep your business operating. You will not have to liquidate your assets but instead will have to make regular payment to your creditors under your reorganization plan.
As an individual filer, you will be able to retain your assets while making regular payments to your creditors. Because you are making regular payments under Chapter 11, it is important to have a steady income and some disposable income to ensure you can make these regular payments.
Chapter 11 Versus Chapter 13 Bankruptcy
For individuals, Chapter 11 and Chapter 13 are very similar. However, some people do not qualify for Chapter 13 because the amount of their debts is too high.
If your debt exceeds the statutory limitations established for Chapter 13, you will want to talk to a knowledgeable bankruptcy attorney to see if Chapter 11 is an option for you.
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