You’re in debt, and you need to find some relief; and filing for bankruptcy under Chapter 7 or Chapter 13 isn’t right for you. Maybe you earn too much money. Or maybe have too much debt spread across multiple properties or other assets in New Jersey and beyond. Consequently, an individual Chapter 11 might work for you.
Chapter 11 bankruptcy is a complicated process. It allows you the chance to reorganize your debts and develop an individual, custom plan of reorganization (the “Plan”). Unlike in a Chapter 7 case, the Chapter 11 debtor remains a debtor-in-possession. Compared to a Chapter 13 debtor-in-possession, the Individual Chapter 11 debtor retains much control over the Plan of reorganization.
A Chapter 11 Plan is usually the result of a great deal of planning and negotiations with creditors. The end result is typically a custom-tailored Plan providing repayment to creditors. The Plan allows the debtor to retain all (or substantially all) of his/her property interests.
The Disclosure Statement
Together with an individual debtor’s Plan, it is also necessary for the debtor to file a Disclosure Statement. Accordingly, without an approved disclosure statement, a Plan of reorganization can’t move forward.
Your disclosure statement must include information concerning assets, liabilities, and business affairs. The circumstances of your case and judicial discretion will govern what information is required. However, at a minimum, your statement must provide enough information for creditors to make informed judgements regarding your reorganization plan. The plan must include a classification of claims and specification of how each class will be treated under the plan.
First, the court conditionally approves the Chapter 11 Debtor’s Individual Plan and Disclosure Statement. Next, the debtor must solicit creditor approval for the Plan. As the U.S. Courts website explains, Creditors whose claims are ‘impaired,’ i.e., those whose contractual rights are to be modified or who will be paid less than the full value of their claims under the plan, vote on the plan by ballot. As such, creditors submit their ballots. Once complete, the court will conduct a confirmation hearing. This hearing determines whether to confirm the Plan.
An individual Chapter 11 filing bears some similarities to Chapter 13. For example, the property of the estate will include your post-petition earnings. The estate also includes property acquired by you after filing and up until the case is closed, dismissed or converted.
The funding of the plan may be from your future earnings, income from the sale of asset and rents received. Additionally, funding may come from post-petition bank or other third party financing.
If a creditor objects to treatment under the Plan, the creditor can demand enforcement of bankruptcy Code Section 1129(a)(15). This requires the debtor to show that s/he is using his/her disposable monthly income each month to fund the Plan. Once a creditor raises Section 1129(a)(15), the plan cannot be confirmed over a creditor’s objection without the debtor committing all of his/her disposable income over five years. There is an exception if the plan pays the claim in full, with interest, over a shorter period of time.
Plan confirmation is subject to numerous additional restrictions. For this reason, it is important to have competent counsel assisting you through your Individual Chapter 11 bankruptcy process. Let the team at Lucid Law explain and help you navigate the complexities surrounding the individual Chapter 11. Call us at (908) 350-7505 today.