CHAPTER 11 BANKRUPTCY
Chapter 11 bankruptcy is primarily designed for businesses, but individuals with substantial debts can also file for this type of bankruptcy under certain circumstances. While Chapter 13 bankruptcy is more commonly used by individuals, Chapter 11 may be appropriate in specific situations.
An individual may consider filing for Chapter 11 bankruptcy when they have a high amount of debt that exceeds the limits set for Chapter 13 bankruptcy. Currently, Chapter 13 has a debt limit calculated from the total combined unsecured and secured noncontingent, liquidated debt. This total is limited to $2,750,000. If an individual's debts exceed these limits, they may need to explore Chapter 11 as an alternative.
Additionally, an individual who owns a small LLC or corporation with foreclosing properties may find Chapter 11 beneficial. This could be the case if the corporate entity is facing financial distress and is unable to stop the foreclosure process. By having the corporate entity file for Chapter 11, the individual can seek protection from foreclosure actions and work towards reorganizing their debts and financial affairs. Although the corporate entity would be filing for Chapter 11, it may feel like an individual Chapter 11 filing because the financials are so closely aligned with those of the individual corporate owner.
Furthermore, Chapter 11 can be used to reorganize mortgages on rental properties, which is something that is not available in Chapter 13. If an individual or a small corporate entity owns one or more rental properties and is struggling to meet mortgage payments, Chapter 11 can provide a platform for negotiating new loan terms with creditors and for developing a feasible repayment plan. This allows the individual or the small corporate entity to retain ownership of the properties while addressing their financial difficulties.
It is important to note that Chapter 11 bankruptcy is a complex and costly process. It requires the assistance of experienced bankruptcy attorneys and financial professionals to navigate the intricacies of the bankruptcy code and develop a viable reorganization plan. The individual must demonstrate their ability to generate sufficient income to support the proposed repayment plan.
Individuals may consider filing for Chapter 11 bankruptcy when their debts exceed the limits set for Chapter 13, when they own a small corporate entity with foreclosing properties, or when they need to reorganize mortgages on rental properties.
Shepherd & Wood, LLP offers professional guidance to ensure a successful Chapter 11 filing and to navigate the complexities of the bankruptcy process effectively.