Chapter 11

Chapter 11 is the business bankruptcy alternative for companies that want to continue operating while dealing with debt. Chapter 11 can also be used to close a business – the advantage of using a Chapter 11 for this purpose is the owner of the company would be the one in charge of liquidating the business and its assets. Often, this can be more advantageous than having a trustee appointed to liquidate since the trustee is less familiar with the business. In a Chapter 7  bankruptcy, a trustee is always appointed to liquidate the business and then distribute the assets collected, pursuant to bankruptcy rules.

Chapter 11 can help a business by:

• Stopping collections and lawsuits (including the IRS and other taxing entities).
• Allowing the business to retain control.
• Improving cash flow.
• Reducing debt.
• Protecting employees.
• Rejecting burdensome lease agreements.
• Paying past-due taxes.

Chapter 11 is available to individuals and married couples who need to file personal bankruptcy but cannot or should not seek protection under Chapter 7 or Chapter 13. Chapter 11 is more expensive to file but provides flexibility to individual debtors that is not available in the other Chapters.

The benefits of Chapter 11 include:

• There are no debt or income ceilings. Those who make too much money cannot file Chapter 7. Additionally, Chapter 13 is only available to those whose debts are less than certain amounts. Chapter 11 is available to any individual who can afford the repayment plan, regardless of the amount of the debt balances.
• A Chapter 11 repayment plan can last up to 10 years. In a Chapter 13 bankruptcy, your repayment plan cannot last longer than five years. This is very helpful for repaying large, secured debts, like mortgages and car loans, or large priority debts, such as income taxes.
• The debtor remains in control over a Chapter 11 case. In Chapter 7 bankruptcy, the court appoints a trustee to administer the case. In a Chapter 11 case (as well as in a Chapter 13 case, although the rules are somewhat different), the debtor maintains control over the process and operates as the Debtor-in-Possession with supervision from the court.

A business cannot file any type of bankruptcy without an attorney under federal bankruptcy law. Furthermore, we do not recommend that any individual do so either, whether it’s to file a Chapter 7, 11 or 13 case. Chapter 11 bankruptcy is a long and complicated process, and having an experienced attorney is of utmost importance to ensure a Chapter 11 reorganization is in your best interest.