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Can Individuals File Chapter 11 Bankruptcy

On Behalf of | Jun 24, 2021 | Bankruptcy Basics, Chapter 11 Bankruptcy

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Individuals Can File Chapter 11 Bankruptcy

Contrary to popular belief, Chapter 11 Bankruptcy is not just for businesses. Individuals can file bankruptcy under Chapter 7, Chapter 13, or Chapter 11 of the Bankruptcy Code. Individuals usually only file Chapter 11 bankruptcy when they are not eligible to file Chapter 7 or Chapter 13 because Chapter 11 is the most expensive, time consuming and complex type of bankruptcy.

This blog will discuss when an individual can and should file Chapter 11 bankruptcy and the general process of the Chapter 11 Bankruptcy.

How Does Chapter 11 Bankruptcy Work?

A Chapter 11 bankruptcy case begins by filing a petition with the bankruptcy court. The person who files for Bankruptcy is called the Debtor. Once the petition is filed, you will immediately benefit from the “automatic stay” which is a Court Order prohibiting your creditors from taking any further collection actions against you. All debt collection action including lawsuits, garnishments and foreclosures are suspended. This gives you the time and opportunity to negotiate a repayment plan with your creditors. The automatic stay remains in effect until your Reorganization Plan is approved by the Bankruptcy Court.

When Is Chapter 11 the Right Choice for Individuals?

It is important to understand what it means to file Chapter 11 Bankruptcy and when it is the right choice for an individual.

  • When You are Not Eligible to File Chapter 7
    • Individuals File Chapter 11 when their income is too high to qualify to file under the means test to file a Chapter 7 bankruptcy and when they don’t qualify to file a Chapter 13 Bankruptcy.
  • You Have Too Much Debt to File Chapter 13
    • Individuals file Chapter 11 when they are not eligible for Chapter 13 because they have too much debt to qualify. As of April 1, 2019, you cannot file a Chapter 13 if you have more than:
      • $1,257,850.00 in non-contingent liquidated secured debts (such as mortgage or car payments)
      • 419,275.00 in non-contingent unliquidated unsecured debts (debts that are not secured by any property, such as most credit card debts and medical debts).

What are the Fees in a Chapter 11 Bankruptcy?

There are more fees in a Chapter 11 Bankruptcy than in a Chapter 7 or Chapter 13. Chapter 11 fees include:

  • Much higher attorneys’ fees than for a Chapter 7 or Chapter 13.
  • Much higher filing fees. As of December 1, 2020, the filing fees for Chapter 11 are $1,738.00, for Chapter 7 are $338.00 and for Chapter 13 are $313.00.
  • A quarterly fee required to be paid to the U.S. Trustee in a Chapter 11 bankruptcy.
  • Cost to prepare and mail the reorganization plan, disclosure statement and creditor

Preparing Your Plan of Reorganization

A Chapter 11 Reorganization Plan is specific to each debtor and is designed to solve their unique financial issues. problems. With the assistance of their attorney the Chapter 11 debtor proposes a plan that outlines how they will pay their debt while keeping their most important assets.

Voting and Confirmation of Your Plan

The Reorganization Plan is filed with the Bankruptcy Court. Once filed your creditors will vote on whether to accept or reject the proposed plan. For the Plan to be confirmed (approved by the Court) it must be accepted by at least one-half of the number of creditors in each class of claims and two-thirds of the dollar amount of claims in each class. This is very complicated, so it is important to speak to an experienced Bankruptcy lawyer to better understand this process.

If the Plan is approved you then start to pay off your debts in accordance with the Plan terms. If approved, the Plan payments can be made up to any period of years. Nevertheless, a Chapter 11 Plan filed by an individual is paid over no more than five years.

Discharge of Your Debt

When you have finished making your Plan payments, you will get a discharge of the debts that remain. A discharge means that your debts are eliminated, and you no longer owe them. If you do not complete the Plan payments, you will continue to owe all the remaining amounts due on any outstanding debt.

Discuss Your Financial Situation with Our Attorneys

Chapter 11 is a very complex area of law. If you are a high-income debtor with significant assets, or if you have exceeded the debt limits of Chapter 13 bankruptcy, you may want to consider filing Chapter 11 bankruptcy. Take the time to talk to an experienced bankruptcy attorney at Levitt & Slafkes about how Chapter 11 bankruptcy can work for you. Contact us at 973-323-2953 to schedule an initial consultation, or contact us online.

We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years.