Chapter 11 bankruptcy has traditional been reserved for large corporations who run into financial trouble and need to reorganize their operations and debts. As of 2007, anyone is now eligible to file chapter 11 bankruptcy if they meet a few requirements.
Chapter 11 bankruptcy is known as reorganization bankruptcy and is similar to chapter 13, which is much more commonly used for individuals. However, chapter 13 bankruptcy has statutory limitations regarding the amount of secured and unsecured debt that can be involved in the reorganization. The approximate figure is somewhere around $350,000 for unsecured debt and $1,000,000 for secured debts. This may sound like a lot of money, but many individuals have easily accumulated debt reaching this level due to previously high real estate values that have recently plummeted. Many people found themselves ineligible for Chapter 13 so the government modified the laws to make it accessible to individuals.
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So you've decided to file Chapter 11 bankruptcy. Now you need to know what to expect. Here's a brief look at the proceedings.
Upon filing chapter 11 paperwork, the debtor must submit to the court a plan to reorganize and pay off debts. The court reviews the plan and makes its recommendation. The court can approve the plan or it can deny the plan and turn the proceedings into Chapter 7 liquidation proceedings. Most people are at least given an opportunity to make the plan work.
At this point, the person is referred to as a debtor in possession. This simply means that the person retains control of his property to use in repaying the debt. Many small business owners and self-employed persons use this to their advantage to get the business up and running again.
The court allows certain contractual obligations to be cancelled. Real estate rental agreements and contracts with product suppliers are the two most common examples. This can ease the strain for individuals who need to cut back and reorganize expenses.
The court periodically reviews the progress and at the prompting of debtors may order a trustee to oversee the assets or even order assets liquidated to pay off creditors. Though there is no fixed limit to the period of reorganization, the court usually wants to see a plan that can be completed in 3-5 years. As long as real progress is being made, the court will usually grant an extension.
If you find yourself with a high amount of debt, chapter 11 may be your only option if you wish to maintain possession of your assets. However, chapter 11 is the most complicated form of bankruptcy and can also be quite expensive. Most people only choose this option as a last resort to save a failing business that has strong hopes of recovery. Otherwise liquidation is usually the cheaper and easier option. But, before doing anything please be sure to consult a qualified attorney.
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