Chapter 11 Bankruptcy

Is Chapter 11 available as a form of consumer bankruptcy?

Unfortunately, Chapter 11 is one of the least understood forms of U.S. bankruptcy. As a result, there is far less information about it online relative to other kinds of bankruptcy. Moreover, much of the information is misleading.

You may have read that Chapter 7 and Chapter 13 are the only available forms of bankruptcy for consumers (i.e., individuals as opposed to businesses). Those are the two most common forms of consumer bankruptcy and, in many cases, the only two available to a given individual. Chapter 11, meanwhile, is usually used by businesses.

However, there are certain circumstances in which Chapter 11 can be used as a consumer bankruptcy filing. Alternatively, individuals who own their own business as a sole proprietorship may file for Chapter 11 on behalf of the business organization. For this reason, it might make sense as a bankruptcy solution for small business owners. We explore these options in further detail in the sections that follow.

Chapter 11 Bankruptcy vs. Chapter 7

If you are an individual choosing between Chapter 7 and Chapter 11 bankruptcy, the first thing you should know is that these two plans adopt wholly different approaches to bankruptcy.

Under Chapter 7, most of your individual and unsecured debts are completely eliminated. However, by filing, you may lose some of your property if it is nonexempt and unsecured. Those assets are then sold so that your creditors can at least receive partial repayment for their losses — though it isn’t uncommon for the creditors to end up getting nothing, because the debtors in these cases often have limited assets to begin with and the exemptions in Washington State are broad and highly protective of the debtor.

Chapter 11 bankruptcy adopts a different approach. Under this plan, you don’t give up your property and you don’t discharge your debts. Rather, you work out a schedule for restructuring and repaying your debts over time.

Chapter 11 Bankruptcy vs. Chapter 13 Bankruptcy

Chapter 11 and Chapter 13 are somewhat similar in their approach to resolving your debt. Both of them allow you to keep your assets while restructuring your debts in order to repay them over time. The key differences between Chapter 11 and Chapter 13 relate to the amount of debt and the timeline for repaying it.

Chapter 13 is only available to people whose debt falls below a certain threshold. Additionally, a repayment plan generally cannot extend beyond 60-months. By comparison, Chapter 11 is available to businesses and some individuals with more substantial debt, and there is no specific limit on the amount of time you may set for repayment.

Finally, Chapter 13 is only available to individuals or those filing jointly as a married couple, whereas Chapter 11 is available to business entities too.

Is Chapter 11 Bankruptcy right for you?

Individuals and corporations can file for Chapter 11 bankruptcy. There are even cases where this form of bankruptcy could be the only available form of relief for someone who is experiencing a lot of financial hurdles. It is always important to approach a lawyer and allow them to give advice on whether it is a suitable type of bankruptcy to file for someone in your situation.

If you are in business, whether a sole proprietorship or partnership, you are still eligible to make a Chapter 11 filing. This type of filing is certainly suitable for any business organization that wants to remain in business after bankruptcy instead of closing down and liquidating.

For individuals, Chapter 11 usually makes the most sense in situations where your individual debt is very large, or where you owe a lot of business debt through a sole proprietorship. Otherwise, in most cases, a different chapter will be a better option for you as an individual.

Chapter 11 Bankruptcy is not for self-filing

Chapter 11 bankruptcy is a complex process that many small businesses seeking to restructure and individuals who want to reorganize their finances are forced into because they do not qualify for the Chapter 13 filings due to owing too much. For most people, especially those who own a small business, filing Chapter 11 without the aid of an attorney is not feasible. The filing process is not only expensive but also risky and time consuming. Chapter 11 bankruptcy is a long, drawn-out, exhausting process.

What happens when you file Chapter 11 Bankruptcy?

When making Chapter 11 filings, you will be required to restructure your finances and come up with an ideal repayment plan which has to be approved by the bankruptcy court.  The repayment plan reduces obligations and modifies the payment terms so that a debtor will be able to balance his income and expenses and still pay the debt.

For businesses, the new plan ensures that the business regains profitability and continues operating so that it is able to pay up the money based on the new agreements. Chapter 11 bankruptcy can also allow debtors to sell some or all of their assets in order to pay some debts or downsize their business. There are special provisions that may apply depending on your unique financial situation. These rules can help individuals and businesses cut down the cost of making Chapter 11 filings.

Gravis Law, PLLC, has the knowledge and experience you need to get through this trying time as quickly and efficiently as possible with the best possible outcome for your case.

Don't wait. Protect what's yours.

Is Chapter 11 bankruptcy right for you? Let us discuss the process and provide guidance that can help you answer that question for yourself.

DISCLOSURE We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.