Personal Bankruptcy Chapter 11 Versus Small Business Bankruptcy Chapter 11

chapter 11 bankruptcy personal vs business debt reorganization

Chapter 11 allows companies to reorganize debts. Although it is often used to reorganize large amounts of money, individuals may also be able to use it. 

They rarely do since Chapter 7 and Chapter 13 are usually quicker and cheaper. In fact, there were only 7,052 Chapter 11 filings in the 12-month period ending Sept. 30, 2017. There were 486,542 Chapter 7 and 296,599 Chapter 13 filings. 

If you are in debt and have many assets, Chapter 11 may be worth looking into. The question is: should you file for a personal Chapter 11 or a Small Business Chapter 11? Small businesses seeking to file chapter 11 in Jacksonville need a good tax attorney to explain the process of filing. 

What Is Chapter 11 Bankruptcy? 

Chapter 11 is also known as "reorganization bankruptcy". It is for companies that wish to continue operating but need to restructure their finances to be able to pay the bills. 

You can file the petition either voluntarily or if there are three or more creditors who have filed a petition with a bankruptcy court. 

A Chapter 11 temporarily bars creditors from taking action until the reorganization plan is filed. A business or individual has 4 months to prepare a plan for reorganization. However, this can be extended up to 18 months. Creditors can then propose reorganization programs. 

The plan is essentially a contract between debtor and creditor which defines how the company will operate and pays its financial obligations. Many plans allow for downsizing to reduce costs and free up assets. 

There are three types of creditors: priority, secured, and unsecured. To approve it by the bankruptcy court, they must vote in their favor. 

If creditors reject the plan, the individual or business can request a "cramdown", which asks a judge to make creditors accept the plan. They want it to be shoved down their throats. 

The repayment plan can be completed in any time frame. Most repayment plans take between six and two years. 

Chapter 11 filing fees are $1,717. However, this is just the beginning. Chapter 11 bankruptcy cases can be complicated. You can expect to spend at most $10,000 on legal fees. However, they can sometimes run into the millions. 

Chapter 11 Personal Bankruptcy 

Why would someone choose Chapter 11? If they don't want all of their assets to be liquidated in Chapter 7, or if they have too many debts to qualify for a Chapter 13 reorganization plan, Chapter 11 is an option. 

To qualify, your secured debt (mortgage and car payments) cannot exceed $1,184,000.25 and $394.725 in unsecured debt (credit card debt). 

If you have a property valued at $98,000 and owe $150,000, you can reduce your principal balance to make the property more valuable. Your new mortgage number would then be $98,000. 

You can also reduce the interest rate or extend your repayment terms by using Chapter 11. This would result in lower monthly payments. 

Chapter 11 Bankruptcy For Business 

Although the debtor can continue to run the business, the bankruptcy court must approve major decisions. If it has sufficient cause to do so, such as fraud, dishonesty, or incompetence, it can appoint a trustee. 

A number of the largest companies in America have filed Chapter 11 petitions. General Motors is at the top of that list, having filed its Chapter 11 petition in 2009. 

It also sold subsidiaries of companies like Saturn, Hummer, and Saab. The U.S. Treasury also provided a $51 billion bailout, which cost taxpayers approximately $12 billion. 

Most Frequently Asked Questions 

What Is The Difference Between Chapter 7 And Chapter 11? 

Chapter 7 is also known as liquidation bankruptcy. This is when the court appoints an administrator to oversee the sale and payment of creditors. Unsecured debts, such as credit card debt, are usually erased. It does not allow for the forgiveness of student loans or taxes owed. Individuals can keep exempt property. Chapter 11 is a type of bankruptcy that involves the reorganization and repayment of debtors' business assets, debts, or assets. It is also known as "reorganization bankruptcy". Although it is more commonly used by large businesses and other entities, individuals can also use it. The only difference is that bankruptcy filings are not subject to any liquidation of assets and the entity in question remains in control. 

Is There A Benefit To Filing Chapter 11? 

This has the greatest advantage that the entity (usually a business) can continue to operate while the process is being done. This allows them generate cash flow to help with repayments. A court order is also issued to keep creditors away. Many creditors will accept Chapter 11, as they can recoup more of their money during the repayment plan. 

What Are The Disadvantages Of Filing Chapter 11? 

This bankruptcy proceeding is often the costliest. The legal fees can be quite costly for a company in financial distress who is contemplating filing bankruptcy. The bankruptcy court must approve the plan and it must be feasible enough that they can afford to pay the debts over the long term. After careful consideration and investigation of all possible options, a company should only consider Chapter 11 reorganization. 

Has Congress Done Anything To Make Filing Chapter 11 Less Painful?
The Small Business Reorganization Act of 2019 went into effect on Feb. 2020. It was designed to make bankruptcy easier for small businesses. 

Then-President Trump signed into law The Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020.  

The Chapter 11 limit was increased to $7,500,000. This change is applicable to bankruptcies filed following the CARES Act's enactment and expires one year later. Now in 2023 there are new changes on the horizon for becoming bankrupt as an individual.

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