Chapter 11 Bankruptcy
What is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is a legal process primarily designed for businesses that are facing financial distress but wish to continue their operations and reorganize their debts rather than liquidating their assets and shutting down. It is often used by large corporations, but it is available to various types of debtors, including small businesses and individuals with significant debts.
This form of bankruptcy protection can restructure debt, prevent home foreclosure or vehicle repossession, stop IRS collection procedures and halt harassment by creditors. Chapter 11 bankruptcy does not require the liquidation of assets and allows debtors to retain most assets, as long as payments are made according to an agreed upon monthly payment schedule. However, the process for filing is a complex one at best and requires the skills of an experienced bankruptcy attorney.
Key Points About Chapter 11 Bankruptcy
Unlike Chapter 7 bankruptcy, which involves liquidation, Chapter 11 allows businesses to restructure their finances and operations while remaining in business. This chapter is also available to individuals with substantial debts.
2. Automatic Stay
When a business files for Chapter 11 bankruptcy, an automatic stay goes into effect, preventing creditors from pursuing collection actions, lawsuits, or seizing assets. This provides the business with breathing room to create a reorganization plan.
3. Reorganization Plan
The debtor (the business or individual filing for Chapter 11) develops a reorganization plan outlining how they intend to deal with their debts and continue operations. This plan may include renegotiating debt terms, selling assets, and finding ways to generate income.
4. Creditor Involvement
Creditors have a say in the reorganization plan and must vote to approve it. The plan must be fair and equitable to all creditors.
5. Bankruptcy Court Oversight
Throughout the Chapter 11 process, a bankruptcy court oversees the proceedings and ensures that the reorganization plan complies with bankruptcy laws.
6. Financial Disclosure
The debtor must provide detailed financial information to creditors and the court to facilitate the negotiation and approval of the reorganization plan.
7. Execution of the Plan
If the reorganization plan is approved, the debtor must adhere to its terms. This often involves making payments to creditors over an extended period.
8. Emergence from Bankruptcy
Once the debtor successfully executes the reorganization plan and meets its obligations, it can emerge from Chapter 11 bankruptcy and continue operating with a more manageable debt structure.
Why Would an Individual File Chapter 11 Bankruptcy?
Individuals may choose to file for Chapter 11 bankruptcy for several reasons, though it’s less common for individuals compared to Chapter 7 or Chapter 13 bankruptcy. Here are some situations in which an individual might consider Chapter 11:
1. High Debt Levels
When an individual has exceptionally high levels of debt that exceed the limits for Chapter 13 bankruptcy, they may turn to Chapter 11 as an alternative to manage and restructure their debts.
2. Complex Financial Affairs
Individuals with intricate financial affairs, such as substantial real estate holdings or multiple businesses, may find Chapter 11 more suitable because it allows for a more flexible and comprehensive reorganization of their assets and liabilities.
3. Protecting Valuable Assets
Chapter 11 provides a way to protect valuable assets that might be at risk of liquidation in Chapter 7. For example, a person with significant non-exempt assets, such as a family business or investment properties, may use Chapter 11 to retain control over these assets while repaying creditors.
4. Business Owners
Individuals who own and operate a business might file for Chapter 11 to restructure business debts and continue operations while working towards profitability. This is often seen in cases where the individual and the business’s finances are closely intertwined.
5. Debt Reduction and Negotiation
Chapter 11 allows for the negotiation of debt repayment terms with creditors, potentially leading to the reduction of debt balances or interest rates, making it more manageable for the individual to repay their obligations.
6. Long-Term Financial Rehabilitation
Some individuals choose Chapter 11 when they have a long-term plan for financial recovery, such as high-income earners who need time to reorganize their finances and pay off debts over an extended period.
It’s important to note that Chapter 11 bankruptcy is a complex and costly process, and it’s typically reserved for individuals with substantial assets and debts. Most individuals with more straightforward financial situations may find Chapter 7 or Chapter 13 bankruptcy more suitable options for addressing their financial difficulties. Consulting with a bankruptcy attorney is crucial to determine the most appropriate bankruptcy chapter based on your unique circumstances.
How Klein Law Group Can Help
If you’re an individual, looking into filing for Chapter 11 bankruptcy, our attorneys are here to help you make an informed decision. We understand that this is a challenging time, and we’re here to provide the guidance and support you need to achieve the best possible outcome.
Call our Boca Raton office today at 561-353-2800 and schedule a FREE consultation with our experienced Bankruptcy Attorneys. During this meeting, there’s no charge, and you’re not obligated to take any action.