As we mentioned in our post last week, Chapter 7 bankruptcy is an effective way to deal with personal debt that has become overwhelming. However, this kind of bankruptcy, sometimes also referred to as a liquidation bankruptcy, is not for everyone. Some find that Chapter 11 bankruptcy, which is available to individuals, corporations and partnerships, is better for their situation.
Is Chapter 11 Bankruptcy Right for You?
In a Chapter 11 bankruptcy, rather than having your assets sold to pay creditors, you’ll reorganize your debt by working with creditors on terms and schedules for repayment. When the repayment period is over, you’ll emerge debt free. But unlike Chapter 13 Bankruptcy, which is similar, Chapter 11 bankruptcy does not have a limit on the amount of debt you may restructure.
Step One: Preparation and Filing
Once you’ve committed to Chapter 11 bankruptcy as your best option, your attorney will help you file your petition. This will include a financial statement, listing everything you have and everything you owe, as well as any outstanding contracts or leases that might be relevant. Once you’ve filed, just like in a Chapter 7 case, a stay on your creditors will be instituted meaning that all attempts to collect on your debts will cease. Chapter 13 bankruptcy is different from Chapter 7 in that rather than being put under the care of a court-appointed trustee, you will remain in control of your assets.
Step Two: Create a Reorganization Plan and Get it Approved
Over the next 120 days, the most important aspect of the Chapter 11 bankruptcy process comes into play. You’ll meet with your creditors and create a plan to pay off the debt and operate in a healthy manner in the long term. This plan usually involves restructuring your debt rather than selling off assets, although businesses often void contracts and leases to reduce costs.
Once your chapter 11 bankruptcy plan is finalized, it must be approved by the court and the creditors. If it is not initially approved, any other party involved is allowed to propose a different plan. But the court has the final say on which plan is approved, and it will choose the plan it deems is in your best interest.
Step Three: Confirmation
Once your chapter 11 bankruptcy plan is approved by the court, it will need to be officially confirmed. If there are no objections from any of the parties involved, this will be fairly simple. However, if there are a lot of objections, and other options for reorganization have been submitted, it can be a lengthy process. In the end, if the court decides none of the options for reorganization will work, it may decide to convert the case to a Chapter 7 liquidation bankruptcy.
Chapter 11 bankruptcy may be the right option for you, but you should contact our bankruptcy attorneys for a free consultation.
