Can an Individual File Chapter 11 Bankruptcy?

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There are a total of six types of bankruptcy a debtor may choose in the United States, and while chapter 11 generally applies to businesses, it is becoming more common to see an individual chapter 11 bankruptcy filing. The reason for the increase in such filings is that consumer debt in this country is increasing, and many of those who cannot qualify for chapter 13 bankruptcy because their debts are too high, can now qualify under chapter 11.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy was generally devised for business bankruptcy filings, but because many wealthy individuals have their own private investment and debt problems in today’s economy, and as a result of reforms established in 2005, individuals can now, more than ever, qualify for chapter 11 bankruptcy.

Chapter 11 is very similar to chapter 13, in that it provides an opportunity for an individual with high income but large debts to reorganize those debts and formulate a plan to pay them off in an agreed-upon period of time. Chapter 13 currently carries these limits on debts:

  • Secured debts - $1,010,650
  • Unsecured debts - $336,900

Those who have a number of investment properties and have fallen on difficult financial times may require higher limits than those, and chapter 11 may then be the appropriate option for them.

Repayment Plan

As in chapter 13 bankruptcy, chapter 11 begins with an automatic stay, or hold, on all efforts their creditors might be making to collect on past due debts. During that time, the filer devises a plan to repay their debts over a specified period of time. There are no set limits on that repayment period, as there are in chapter 13. However, at least one creditor must agree to the debtor’s plan or the court will have to get involved and mandate a solution.

In addition, there is no means test to qualify for chapter 11 bankruptcy. This gives more debtors the opportunity to petition for this plan, as long as their debt is significant enough to make it worthwhile. While in the past, chapter 11 filers were allowed to discharge many unsecured debts when their repayment plan was approved, new regulations only allow debts to be discharged upon completion of the agreed-upon repayment plan.

Getting Legal Help with Chapter 11 Bankruptcy

While chapter 11 is a viable bankruptcy plan for individuals with high incomes and debts, it may not be the best choice for every such debtor. The consequences are still heavy, considering the toll bankruptcy takes on one’s credit score. For someone who bases much of their income on investments, it may be wise to consult a knowledgeable bankruptcy attorney to ensure that this is the best option for the debtor.   

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