Chapter 11 Bankruptcy
Get to Know Chapter 11 Bankruptcy
The financial industry is renowned for offering hundreds of products, providing their customers with numerous choices and often difficult decisions to make. This even extends to the field of bankruptcy, with at least three different options to choose from, namely Chapter 7, 11, and 13. Because there are so many complications and differences, we wanted to provide an in-depth page detailing the pros and cons of each option. This page is focused on Chapter 11 Bankruptcy. The equivalent pages for Chapter 7 can be found here, and Chapter 13 here.
What Is Chapter 11 Bankruptcy?
A Chapter 11 Bankruptcy is an approved legal option designed to provide individuals and businesses with an opportunity to rearrange their financial situation and subsequently, pay their creditors over time. The primary benefit of filing for a Chapter 11 bankruptcy, is that the person or company filing retains control of their assets. They are also permitted to come up with a new plan which is intended to pay off their debts. Chapter 11 bankruptcy is not used as widely as a Chapter 7 or Chapter 13 Bankruptcy, but there may be certain situations where it is the most appropriate option.
Is Everyone Eligible To File For Chapter 11 Bankruptcy?
Although a Chapter 11 Bankruptcy is available to individuals, it is predominantly used by business owners. It is an option for corporations, LLC’s, sole-proprietors, partnerships and of course individuals.
Are there any restrictions on the type of debt which can be discharged under a Chapter 11 Bankruptcy?
A Chapter 11 Bankruptcy is designed to provide the person or business filing with an opportunity to reschedule their debts. Once agreed, the original debt agreement is discharged, and the new payment plan takes over. In many cases, this is advantageous to the debtor, as the amount of debt is often reduced as part of the agreement. However, not all debts are eligible to be discharged under a Chapter 11 filing. Debts such as child support, student loans, secured loans, alimony payments, specific taxes, and any debts for an injury which was caused by driving under the influence are all exempt.
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What Are The Costs Involved In Filing for A Chapter 11?
It always seems a little ironic, that someone who is bankrupt has to pay a charge, with money they do not have, to be declared bankrupt, and this also applies to filing for Chapter 11 bankruptcy. Filing for Chapter 11 is more expensive than filing for Chapter 7 or 13. Debtors will be charged $1,167 as a case filing fee, and then an additional $550 miscellaneous admin fee. Remember to include any attorney fees that may be payable as well.
What Are The Key Differences Between A
Chapter 11 And A Chapter 7 Bankruptcy?
Chapter 7 and Chapter 11 bankruptcies are two very different options, which is why it is important to understand your overall aims and which option is the most appropriate for your situation. In a Chapter 7 Bankruptcy, the objective is to sell any non-exempt assets, in an attempt to pay your debtors. Upon the liquidation of those assets, any remaining debt will then be discharged.
With a Chapter 11 bankruptcy, the initial aim is to reorganize any debts and then create a new payment plan. The benefit of this can be twofold; firstly the debtor is allowed to retain any assets they have. Secondly, for business owners, this provides them with the opportunity of keeping their business open, reducing their payments, and potentially clearing their debt over a specified period of time, generally between three and five years.
What Are The Key Differences Between A
Chapter 11 And A Chapter 13 Bankruptcy?
There are many similarities between Chapter 11 and a Chapter 13 Bankruptcy. However, there are also a few important differences. The overall aim is to obtain a new easier to maintain payment plan, with the intention of clearing the debt over time. This means that in most cases, the creditor will eventually get their money back.
When it comes to filing for a Chapter 13 bankruptcy, only individuals are eligible, whereas, under a Chapter 11 bankruptcy, both businesses and individuals are permitted to file.
Additionally, the threshold for debt is lower for Chapter 13 eligibility. In order to qualify for Chapter 13 bankruptcy, individuals can only have up to $394,725 of unsecured debt or $1,184,200 of secured debt.
For anyone who has higher levels of debt than mentioned above, a Chapter 11 bankruptcy is likely to be a better option. That is because there are no debt limitations under Chapter 11.
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How Complicated Is The Process Of Filing For
Chapter 11 Bankruptcy?
The aim of any bankruptcy option is to help you recover financially, but there is also an emphasis placed on education and prevention so that hopefully you do not have to go through the process more than once.
This means that there is a range of strands that you must complete as a requirement before the process can be completed.
Credit Counseling Course
The first step involves attending a credit counseling course from an approved credit counseling agency. To ensure a sense of urgency, this must be completed within 180 days of filing. As part of the credit counseling program, you will create a debt repayment plan.
Filing of The Petition
Although preferable, it is not always the debtor who files the petition of bankruptcy. If creditors become concerned that they are unlikely to be paid, they can also file a petition for bankruptcy. The debtor will need to file a schedule of:
- All of their assets and liabilities - This will include pensions, property and savings accounts, debts, outstanding bills, and other credit agreements.
- A comprehensive and accurate list of income and expenditure
- Any contracts or leases to which they obligated
- Debt repayment plan from credit counseling.
- Proof of payment from employers if it was received up to 60 days before filing
- A statement of net monthly income, and any anticipated changes to income or expenditure following a successful filing.
- A record of any interest the debtor has in federal or state qualified education or tuition accounts.
Paying The Fees
The next stage involves paying the filing fee of $1167.00 along with the additional admin fee of $550.00
This means that as soon as the bankruptcy petition has been filed, the debtor receives some protection from their creditors. Once the stay is in operation, creditors are no longer allowed to continue collection activities or repossess any property while the bankruptcy plan is being created.
Debtor in Possession
Another benefit of filing the petition is that the instant it is filed, the debtor assumes the role of “debtor in possession.” This is critical because it means that the debtor is now able to keep possession of any assets during the debt reorganization process.
Disclosure Statement And Debt Reorganization Plan Filed
With The Court
The next stage of the process requires the debtor to file a document, which includes all of the relevant information on their assets and liabilities. This needs to be a fully comprehensive document because it is this information that will help the creditors decide on whether or not they approve the debt reorganization plan.
The Creditors Vote
Any creditors who would receive less money than the full value of the debt under the repayment plan, are then entitled to vote by ballot.
The Creditors Vote Confirmation Hearing
The final stage of the process is a confirmation hearing. The court looks at the collected ballots and has a hearing to confirm whether or not the plan is approved.
Frequently Asked Questions
There usually are court costs associated with filing for bankruptcy, and the costs will vary depending on the type of bankruptcy, and your current financial situation. At the time of writing, the cost of filing for a Chapter 7 Bankruptcy is $306 and for a Chapter 13 Bankruptcy $281. Some courts may also charge an additional administration fee. The good news is that in most cases, it is possible to pay the filing fee in installments. Some courts may also waive the filing fee for a Chapter 7 Bankruptcy if you can demonstrate that your income is below a certain level, and the court decides not to allow you to pay the filing fee in installments. Whether you use a company like Bankruptcy Help or an attorney, there will be additional fees payable, and it is standard practice to pay upfront for those services, particularly in the case of a Chapter 7 Bankruptcy.
It is a common misconception, that once someone is declared bankrupt that all of their debts are discharged, but this is not the case. The first thing to be aware of is that bankruptcy will not cover any debts which were incurred after you filed for bankruptcy, and which were not mentioned during the filing process. There are other debts that are not covered by bankruptcy. These include but are not limited to
• Student Loans
• Any Fines That Are Owed To A Government Unit Such As A City or State
• Any Outstanding Debts For Income or Property Taxes
• Child Support or Alimony Debts
• Any Fines You Have Received As Part of a Criminal Prosecution
Debts that you have obtained fraudulently may not be discharged. For example, if before filing for bankruptcy, and knowing that this was your intention, you decide to go on a spending spree with your credit card, spending money on a vacation, then this may be considered fraud if it can be proven that you had no intention to pay the debt.
In total, there are four different types of bankruptcy available to individuals, and each has specific conditions that must be met.
Chapter 7 - Perhaps the most well known and severe type of bankruptcy. This typically takes between two and three months and involves the sale of your residential property to pay off your debts.
Chapter 11 - A highly complicated process, predominantly targeted towards business debtors, but in some instances, it may be suitable for individuals with substantial debts and assets.
Chapter 12 - A type of bankruptcy very similar to Chapter 13, but exclusively available to family farmers and fishermen.
Chapter 13 - A court-supervised repayment plan which is designed to repay an agreed percentage of your total debt, over a period between 3 and 5 years.
Chapter 7 and Chapter 13 are the most frequently used options; Chapter 13 is preferable in most situations, as it enables the person filing for bankruptcy to retain their property, versus Chapter 7 where they must sell it to clear their debts.
The fact that you have filed for bankruptcy will be registered on your credit report. If you filed for a Chapter 7, then it will remain on the file for ten years, and for seven years if you filed for section 13. However, although obtaining credit will initially be more challenging, it will not prevent you from ever obtaining credit again in the future.
There are probably hundreds if not thousands of reasons why any honest hard-working individual could find themselves in financial difficulty. The bankruptcy laws were designed to provide people with a second chance, and a fresh start. On the other side of the equation, the laws were also intended to ensure that all creditors are treated equally. Once the bankruptcy process is complete, your creditors are prevented from trying to collect any outstanding debts, and as a consequence, you are then able to move forward with your life.
When a debt is said to be discharged, the debtor is no longer legally obligated to repay the debt, and the creditor is prohibited from trying to enforce payment. It is essential to understand that if someone else co-signed on an agreement, they would remain liable for the debt. Finally, if the debt was a secured loan, where you agreed to use property as collateral for the loan, then your creditor may still be entitled to repossess the property, should you not repay the loan. In situations like this, you are advised to speak to our friendly customer service team who will be able to provide you with the correct advice or provide you with the details of a bankruptcy lawyer.