Chapter 11 Bankruptcy: Frequently Asked Questions
If you are considering or in the process of filing for Chapter 11 bankruptcy, having as much knowledge about the legal process is to your advantage. Bankruptcy can be rather confusing -- and most debtors have questions at some point about the various aspects of Chapter 11. Contained in this article are answers to several of the most frequently asked questions (FAQs) concerning Chapter 11 bankruptcy.
What is Chapter 11?
Chapter 11 bankruptcy is a form of bankruptcy where the debtor, usually a business, obtains a reorganized payment plan that enables them to continue paying their creditors. Unlike a Chapter 7, a Chapter 11 bankruptcy allows debtors to keep control of their assets or business rather than give them up to the courts for liquidation.
Why is Chapter 11 bankruptcy any different from Chapter 13?
Both Chapter 11 and Chapter 13 involve reorganizing debts into a repayment plan that allows the debtor to hold onto their assets. However, several differences remain between the two forms of bankruptcy. The most important difference is the debt limit enforced in Chapter 13 cases -- debtors can only have so much secured and unsecured debt if they wish to file for Chapter 13.
Are individuals eligible for Chapter 11?
Although Chapter 7 and Chapter 13 bankruptcies tend to be more suitable options, individuals can usually file for Chapter 11 bankruptcy. Often times, high-income individuals or small business owners who otherwise could not qualify for bankruptcy will elect to file for Chapter 11. It is important to note, however, that Chapter 11 can be a longer and more complicated process for an individual, and thus should be entered only after careful consideration and advice from a bankruptcy attorney, usually as a last resort.
How much does a Chapter 11 bankruptcy cost?
Generally speaking, Chapter 11 is known as the most expensive form of bankruptcy in the United States. To begin with, the filing fee for a Chapter 11 is over $1,000 -- triple the cost of Chapter 7 bankruptcy. Also, because the negotiations that go into the reorganization plan can be obstacle-ridden, legal fees also tend to be more significant. A small Chapter 11 bankruptcy can cost $10,000 or more, and larger cases can lead to much higher expenses.
How long will the Chapter 11 bankruptcy last?
Chapter 11 bankruptcies can vary in length. Unlike Chapter 13 bankruptcies, there is no time limit to the repayment plan. Instead, the length of the plan is up to the discretion of the court, based on the case. Therefore, a Chapter 11 bankruptcy repayment plan can potentially be quite long if the court determines it will take that amount of time for the debtor to make good on their debts. On average, Chapter 11 plans last between 4 and 5 years.
Does a debtor receive a discharge in a Chapter 11 bankruptcy?
Yes, a Chapter 11 does allow debtors to receive a formal discharge. Generally, after a complete repayment plan has been approved and confirmed, remaining debts not included in the plan are discharged. From that point forward, the debtors become responsible to make plan payments as ordered by the court. For an individual debtor, however, debts not included in the plan are usually only discharged upon successful completion of the plan. Non-dischargeable debts -- which can never be discharged -- include student loans, civil lawsuit judgments, and marital debts.
Are Chapter 11 bankruptcies public record?
As a civil proceeding, Chapter 11 bankruptcy is a matter of public record. That means that the public has access to information about your filings through the courts. If you own a business, it is possible for customers or suppliers to find out that you are currently filing bankruptcy. A Chapter 11 bankruptcy will also be listed on your credit report for 10 years.
PLEASE KNOW THESE ANSWERS ARE PROVIDED BY THE NATIONAL ASSOCIATION OF CHAPTER 13 TRUSTEES