Businesses in financial trouble file Chapter 11 bankruptcy to buy some time to pay off their debts and return to a profit-making status. Yet, in certain circumstances, it can be opportunistic for individuals to file, as well.
A Chapter 11 filing may be preferable to a Chapter 7 filing because it won’t completely decimate your credit rating for a decade. Chapter 11 also provides a different type of repayment structure compared to Chapter 13 bankruptcy.
Traditionally, a Chapter 11 bankruptcy is beneficial to businesses that owe substantial amounts of money to creditors. A company is allowed to continue operating, but any financial decisions must be approved by the bankruptcy court. This takes the purchasing, hiring and firing decisions out of the hands of management.
Part of the Chapter 11 provision allows businesses to postpone payments to debtors, while crafting a restructuring plan to return the company to a position of profitability.
It is possible for some companies in bankruptcy to continue trading their stock, with strict controls. Though understandably, a reputation for mismanagement that accompanies bankruptcy impacts stock prices and investor confidence.
In terms of options for individuals unable to pay their debts, Chapter 11 bankruptcy is way down the list. Yet, it may be your only option if you make too much income to write off all your debts with a Chapter 7 filing – and don't make enough income to meet the mandates of a Chapter 13 repayment plan.
Essentially, Chapter 11 bankruptcy enables you to restructure your personal finances to get money out of trust funds and investments to pay off your creditors.
Chapter 11 is similar to Chapter 13 bankruptcy. The following points are consistent.
No discharge on agreement – Part of the bankruptcy hearings will take the form of negotiating a repayment agreement between the individual and his or her creditors. The case will remain in the legal system and subject to review by the judge until all points outlined in the action plan have been completed and all debt repaid.
Wage contributions – A Chapter 11 filing doesn’t write off your existing debts. It allows you to renegotiate payment times and amounts with each of your creditors. The court will then automatically deduct these payments from your earnings to make sure the money gets transferred appropriately. The court will evaluate your financial circumstances and earnings to make sure that the amount deducted won’t cause you to default on other financial obligations.
Credit counseling – As with any form of bankruptcy, you will be expected to sit down with a credit counselor to review your personal finances. This will involve creating a sustainable budget that will be legally binding in court. It will also likely include attempts to consolidate or renegotiate your debts to reduce fees and interest rates.
The cost of bankruptcy filing and resolution can range from $10,000 to $40,000 USD, with this cost being added to the debt you owe. Seeking Chapter 11 is only for those who have little available cash but large amounts of sellable assets. Chapter 11 is typically used by individuals with a net worth of more than one million dollars.
To determine the type of bankruptcy you should file, consult with an experienced, reputable bankruptcy lawyer. For more information about bankruptcy filings, see the article links below.