What is Chapter 11 Bankruptcy?

By | September 16, 2013

Chapter 11 bankruptcy is most commonly filed by corporations but may also be used for some individual bankruptcy claims. Other common bankruptcy options such as Chapter 7 (an asset liquidation bankruptcy) and Chapter 13 (a financial reorganization bankruptcy) that can be used by individuals are generally shorter processes than Chapter 11 but for different reasons they are not available for all individuals. Chapter 7 is often undesirable if you have assets to protect from liquidation while Chapter 13 imposes strict maximum limits on income the individual is allowed which forces some filers to follow the Chapter 11 process. Unlike chapter 7, chapter 11 is not an asset liquidation process. It is a financial reorganization bankruptcy similar to chapter 13 but without the income restrictions. The debtor still needs to repay their creditors but the filing is a way to protect the filer’s assets while helping them to manage their debt repayments. As with other bankruptcy options, personal debts such as child support, taxes and alimony are not included in the filing and must be paid as previously agreed. Whether you are looking at individual or corporation bankruptcy case, it is recommended to contact bankruptcy lawyers that have experience in these types of cases for assistance and representation in the bankruptcy court proceedings. Individuals filing chapter 11 bankruptcy generally have a few similarities, most significant of which is that they are struggling and/or unable to keep up with their existing debts and bills using their current income. Other factors that play into whether an individual should file under chapter 11 include having relatively high income levels compared with their state median income, ownership of significant assets and property that could potentially be lost in other bankruptcy filings and sudden income changes that make their previously existing financial commitments a hardship when they were manageable before the income changed. Businesses filing under chapter 11 do so for similar reasons to individuals filing, but they also have the added factor of the need to keep their business operating. Companies that have filed recently have included major department stores, car manufacturers and others for whom liquidation bankruptcy is very much a last resort. In the case of a business filing, many restructuring plans will include some reduction in operations for the business – the business can continue to operate but at a downsized level – to create more financial room to pay debts. Fewer employees, fewer manufacturing shifts, etc are all options that might be proposed to help a business lower their expenses in order to pay what is owed to their creditors. Whether you are filing as a business or an individual the basic process is similar. After working with your bankruptcy lawyers to file your claim with the bankruptcy court, the process will include an overall evaluation of your finances, debts and assets to determine how much you can afford to pay in ongoing payments per month. This is followed by a negotiation period, sometimes by a court appointed financial trustee, with all of your creditors to establish new repayment plans for your debts. While under the bankruptcy repayment plan, the debtor that filed does lose significant control over their financial decisions until the case is closed. Major sales, purchases, loans and contracts, if they aren’t strictly forbidden by the terms of the bankruptcy, must generally be approved by the bankruptcy court before the debtor can proceed. Although any bankruptcy filing is not a goal for anyone, chapter 11 is a reasonable option for a debtor that is struggling but has good intentions to gain some breathing space financially while they reorganize their finances in order to pay their debts and maintain their property. The case itself can last from a few weeks or months to a couple of years depending on the amount of debt to be repaid and the agreed upon repayment plan. After your case is completed, meaning your debts are paid and the case has been closed by the court, you may still want to speak with your bankruptcy lawyers to understand what happens next. Like any bankruptcy, chapter 11 will have an impact on your financial standing. It will impact your credit report for up to seven years and may limit your ability to get approved for loans. Continuing to manage your finances during and after your bankruptcy will help you get back to a better position soon and avoid the need for future bankruptcy filings.

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