Are You a Candidate for Individual Chapter 11 Bankruptcy?

Individual Chapter 11 BankruptcyFiling for bankruptcy is a difficult decision. Still, hundreds of thousands of Americans file for Chapter 7 or Chapter 13 bankruptcy each year and find debt relief. Although Chapter 11 bankruptcy is typically reserved for large corporations, individuals may also file Chapter 11 in some circumstances. It may even be more beneficial depending on the filer’s situation. The following will help you decide whether you’re a good candidate for Chapter 11.

What is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is also referred to as “reorganization” bankruptcy. This is because rather than settling debts by liquidating assets or making predetermined payments, you and your creditors work together to negotiate and develop a customized reorganization plan that dictates how the debt is repaid. The goal is to reach a new repayment term that’s more realistic for the debtor. It could include an extended repayment period, a lower interest rate or even a reduced principal.

Like with other chapters, once Chapter 11 is filed, an automatic stay is put in place, meaning creditors can no longer take aggressive collection actions, such as phone calls, letters and lawsuits. This allows you the opportunity to negotiate and develop your reorganization plan in a less stressful manner. The automatic stay remains in effect until the court and creditors approve your reorganization plan.

The reorganization process can be simplified into three main steps:

  • Negotiations – This involves fully disclosing your income, assets and debts and beginning the negotiation process with creditors.
  • Reorganization Preparation – After negotiations, you propose your plan of repayment that lists the new terms and submit a disclosure statement to the court for approval.
  • Voting and Confirmation – After the plan is submitted, the creditors collectively vote on the proposal and accept or deny it.

Not all creditors are easy to please, though some will want to work with the debtor so they’re assured a repayment of some kind rather than nothing at all, which would be the case in a Chapter 7 bankruptcy.

Chapter 11 Candidacy

It’s important to note that while individuals can file Chapter 11, it’s a less common option for several reasons. For many, the negotiation period can be lengthy and complex, which means more time spent working with an attorney, and ultimately more money out of your pocket.

Chapter 11 also has specific financial requirements that aren’t often met by the average person. For example, to qualify, your debts must exceed the limits of Chapter 13 bankruptcy, which are currently set at $394,725 in unsecured debt and $1,184,200 in secured debt.

  • Unsecured debts don’t have any collateral or the lien is greater than the available collateral
  • Secured debts have collateral, such as a mortgage or car loan

Individuals filing for Chapter 11 typically have too much disposable income to qualify for a Chapter 7 “straight liquidation” bankruptcy, so the courts deem Chapter 11 a more appropriate debt solution.

Benefits of Choosing Chapter 11

When completed, Chapter 11 bankruptcy eliminates the possibility of foreclosures, lawsuits, garnishments and liquidation of assets while still providing relief from overwhelming debt. In addition, the debtor is given breathing room to work toward a solution that’s viable for everyone involved.

Another reason individuals file Chapter 11 is additional discharge. If they were awarded a Chapter 7 discharge within the last four years or a Chapter 13 discharge in the last two, they will be unable to discharge remaining or new debt using those chapters again in that time frame. However, after completing the agreed upon repayment plan under Chapter 11, their debt can be discharged again no matter how recently Chapter 7 or 13 was completed.

Another difference between Chapters 13 and 11 is the allotted repayment period. Under Chapter 13, the debtor is given three or five years to pay off their debts in accordance with the plan agreed to in bankruptcy court. Filing Chapter 11 allows the debtor to stretch the repayment period far beyond that if creditors and the trustee agree.

Is Chapter 11 Right For You?

While Chapter 11 has its benefits, it may not be best option if you don’t have sufficient income or a very large amount of debt. If you’re considering bankruptcy of any kind, the first step is working with an experienced bankruptcy attorney so you can find the solution that best matches your situation. The lawyers at Bartolone Law have many years of experience helping clients in the Orlando, Florida area find the debt relief they’re seeking. Call us at 407.294.4440 for a free consultation or visit us online for more information.