Chapter 11 bankruptcy is the form with which people are most familiar as it routinely makes the news when corporations like General Motors or K-Mart are in financial trouble. Partnerships and corporations usually file Chapter 11.
However, debt relief through a Chapter 11 proceeding is also an option for individuals, particularly when they have either too much income or too much debt to qualify for chapter 7 or 13 bankruptcy.
Eligibility Requirements for an Individual Chapter 11
Chapter 11 is often the best option for individuals who have too much value in non-exempt assets that they want/need to keep for Chapter 7 and who have too much debt to qualify for Chapter 13.
Chapter 11 offers more flexibility than Chapter 13, but it is also a more expensive and time-consuming process. Many small business owners prefer to file for Chapter 13 if possible.
All bankruptcy proceedings have dischargeable and nondischargeable debts. Dischargeable debts are those that you aren’t required to pay back at the conclusion of a proceeding, and they include, among other things, medical bills, credit card debts, personal and business loans that are not secured by collateral. You must pay back all nondischargeable debts, which include child support, alimony, and student loans, among others.
Chapter 11 bankruptcy is often referred to as “reorganization” bankruptcy because it allows you to restructure your debts and make reduced payment arrangements while maintaining ownership of your property. However, an individual may also use a Chapter 11 process for an “orderly liquidation” of assets.
Individual Chapter 11 debtors are usually able to keep their assets including but not limited to real estate, cars, complete ownership of businesses, and household furnishings. In fact, Individual Chapter 11 cases are often used to reorganize the mortgages or other liabilities encumbering real property when a debtor does not qualify for such relief under Chapter 13 because their case is too complex or they have too much income, too many assets and/or too many liabilities.
How Chapter 11 Bankruptcy Works
Begin by hiring a qualified attorney, who will review your legal options and help you decide which bankruptcy process (if any) is right for you. All bankruptcy cases begin by the filing of a “petition for relief” in the jurisdiction where you reside or own real property. With your petition for relief, you must also file a schedule of your assets and liabilities, your current income and expenses, your contracts and leases, and other information about your financial affairs.
A Chapter 11 debtor is a “debtor-in-possession” and no case trustee is appointed but, instead, the debtor retains control over the process.
As soon as a Chapter 11 petition for relief is filed, the Office of the United States Trustee (“OUST”) will schedule a Meeting of Creditors which is required by Section 341(a) of the Bankruptcy Code, where creditors are permitted to be present evidence why they should be paid. Creditors rarely appear for or participate in the Meeting of Creditors, however, and the real purpose of this meeting is for the OUST to interview the debtor(s) and determine if further investigation of the debtor(s) assets and liabilities is necessary.
Unlike in a Chapter 7 or Chapter 13 proceeding, in a Chapter 11 case, a case trustee is only appointed if one or more creditors or the OUST show the court that the debtor(s) is not acting in a manner consistent with his/her fiduciary duties to creditors and has conducted his/her affairs in a manner that is unlawful or improper.
If you are interested in finding out if an Individual Chapter 11 process can help you get relief from your debts and achieve your personal and financial goals, call Lucid Law for a Free Consultation.