What is a Chapter 11 Bankruptcy Reorganization?
Chapter 11 bankruptcy is a reorganization of debts under Bankruptcy Court protection. It is more complex than and expensive compared to a Chapter 13 bankruptcy plan. There are benefits to the use of the Chapter 11 bankruptcy reorganization such as the length of a confirmed plan and flexibility in a plan that is beyond anything that is available in a Chapter 13 bankruptcy reorganization. However, Chapter 11 bankruptcy is often chosen by individuals and small businesses because the benefits of a Chapter 13 bankruptcy reorganization is simply not available.
When a Chapter 11 Bankruptcy Reorganization May Be Your Only Choice.
Individuals who have secured debts that exceed $1,149,525 or unsecured debts that exceed $360,475 are not allowed to do a Chapter 13 bankruptcy reorganization. This means that, to get the protection from creditors, an individual can only do a Chapter 11 bankruptcy reorganization.
There is another problem that may bring an individual to file a Chapter 11 bankruptcy reorganization. That is where an individual cannot pass the “means test” because debtor’s income is too high to qualify to do a Chapter 7 bankruptcy. Often an individual would like to file a Chapter 13 reorganization but cannot do so because the secured or unsecured debt exceeds the Chapter 13 dollar limits.
Who Can Be a Debtor in a Chapter 11 Bankruptcy Reorganization?
Corporations, Limited Liability Companies (LLCs) and partnerships cannot file a Chapter 13 bankruptcy. Their only option is to do a Chapter 11 bankruptcy reorganization. Simply put, if it isn’t a warm, breathing, living human being, it can’t file a Chapter 13 bankruptcy. On the other hand, an individual or spouses can use a Chapter 11 bankruptcy if they want to.
What Does a Chapter 11 Bankruptcy Reorganization Cost?
The Bankruptcy Court filing fees and U.S. Trustee’s fees for a Chapter 11 bankruptcy are extremely high. The bankruptcy court filing fee alone is $1,717. In addition, a Chapter 11 Bankruptcy debtor must pay the U.S. Trustee’s office a quarterly fee that ranges from $325 to $4,875 in cases below $1,000,000 in “disbursements.” The exact amount is determined based on those disbursements.
Attorneys fees are also extremely high for a Chapter 11 Bankruptcy. An experienced, skilled bankruptcy lawyer is going to typically require $10,000 to $20,000 or more up front to start a Chapter 11 bankruptcy reorganization. That is for smaller Chapter 11 cases. There are bankruptcy lawyers who will attempt to do a Chapter 11 bankruptcy reorganization with less than that up front. However, those bankruptcy lawyers typically are lawyers who have limited experience and, consequently, a lower Chapter 11 bankruptcy success rate.
How Successful Are Chapter 11 Reorganization Plans?
The success rate for Chapter 11 bankruptcy reorganizations are extremely low with an average of about 5%. Unfortunately it is even worse for small debtors in Chapter 11 bankruptcy cases. That is because big companies like airlines, oil companies and other mega-businesses can afford to spend millions of dollars to hire big law firms that specialize in doing this type of work. The typical small to medium business simply cannot afford the money to get that type of legal help.
In a Chapter 11 bankruptcy reorganization, there are many things that must be done that are not required in Chapter 13. There are creditor’s committees to be dealt with in a Chapter 11 bankruptcy reorganization that are not even allowed in a Chapter 13 case. The Chapter 11 Bankruptcy reorganization plan must be voted on by the creditors, again, not required in Chapter 13 cases. The creditors in a Chapter 11 bankruptcy reorganization have the right to propose their own plan if they do not like or will not vote for the debtor’s proposed Chapter 11 bankruptcy reorganization plan. Again, not the case in Chapter 13.
Chapter 11 Bankruptcy Reorganization Final Thoughts
The above highlights just a few of the issues in doing a Chapter 11 bankruptcy reorganization. There are many more. To say the least, a Chapter 11 bankruptcy reorganization is extremely complicated and more expensive than a Chapter 13 bankruptcy reorganization. The good news is that most consumers, sole proprietor businesses and the owners of corporations can often do Chapter 13 bankruptcy reorganization. Sometimes even debt negotiations may be better than a Chapter 11 Bankruptcy Reorganization plan. Chapter 11 bankruptcy reorganization for individuals and small businesses is typically a choice of last resort.