Learning the Basics of Chapter 11 Bankruptcy
Anyone with a business struggling to pay its debts, but where there are plans to make the business more profitable or sustainable in the future, may be considering the possibility of Chapter 11 bankruptcy. It is important to understand that Chapter 11 bankruptcy is a type of reorganization bankruptcy, which is distinct from liquidation bankruptcies filed under Chapter 7. Accordingly, in a Chapter 11 bankruptcy (and in other types of reorganization bankruptcies), there is no need for all non-exempt assets to be liquidated. Instead, debtors filing for Chapter 11 bankruptcy will develop a repayment plan that must be approved by the court and will make payments to creditors over a regular period of time. In short, through the repayment plan, debts can be restructured. Throughout a Chapter 11 case and at its completion, a business can remain open. Indeed, to be clear, Chapter 11 bankruptcies do not require businesses to do their doors (as Chapter 7 bankruptcies do).
What do you need to know about the basics of a Chapter 11 bankruptcy? Consider the following information from our West Palm Beach bankruptcy lawyers.
Chapter 11 is Usually a Business Bankruptcy But Can Be Used by Consumers
In most cases, Chapter 11 bankruptcy is a type of bankruptcy filed by businesses. However, in certain circumstances, individual consumers want to file for reorganization bankruptcy but have too much debt to file for Chapter 13 bankruptcy (the type of reorganization bankruptcy traditionally filed by individuals). The current debt limit for Chapter 13 bankruptcy is $2,750,000. When consumers owe that much combined secured and unsecured debt, they often consider Chapter 11 bankruptcy instead.
Debtor in Possession Distinction
Unlike a Chapter 13 case, a business in a Chapter 11 case becomes a “debtor in possession in the position of a fiduciary, with the rights and powers of a Chapter 11 trustee, and it requires the debtor to perform all but the investigative functions and duties of a trustee.”
Debtor Files an Initial Petition and the Automatic Stay Applies
Like any other bankruptcy filing, with a Chapter 11 bankruptcy case, the debtor files a bankruptcy petition, and the automatic stay (an injunction) will prevent creditors or debt collectors from taking any further collection actions against the debtor during the case.
Additional Forms and Materials Are Required
In addition to the initial bankruptcy petition, the U.S. Courts explains that Chapter 11 filers must also file the following:
- Schedules of assets and liabilities;
- Schedule of current income and expenditures;
- Schedule of executory contracts and unexpired leases; and
- Statement of financial affairs.
Complexity and Cost
Chapter 11, in general, is significantly more expensive and more complex than other types of bankruptcy. It requires the debtor to pay ongoing fees, to take on roles of the trustee (as discussed above), and to deal with a range of other requirements. You should always work with an attorney on any Chapter 11 case, whether you are a business or an individual that is planning to file.
Contact a Bankruptcy Attorney in West Palm Beach
Chapter 11 bankruptcy is complicated, whether you are considering this type of bankruptcy as a business or as an individual. Unless you are eligible for a small business bankruptcy or Subchapter V bankruptcy under Chapter 11, you will need to work with an experienced West Palm Beach bankruptcy attorney from start to finish to ensure that you meet all requirements and comply with all rules involved in a Chapter 11 case. One of the bankruptcy lawyers in South Florida at Kelley Kaplan & Eller can begin working with you today on your Chapter 11 case.