At first glance, the concept of Chapter 11 bankruptcy for an individual debtor seems odd. This is because Chapter 11 is primarily filed by businesses that are making money but experiencing financial distress. These companies seek to improve their situation by restructuring secured debt and reducing unsecured obligations. However, it is also a form of debt relief that is available to individuals who make too much money for a Chapter 7 bankruptcy, but whose debt levels are too high for a Chapter 13.
How Does Chapter 11 Work?
A Chapter 11 bankruptcy is designed to help debtors and their creditors create a plan of reorganization that makes it easier for the former to satisfy the greater part of their financial obligations. Although businesses are the primary Chapter 11 filers, individuals who cannot qualify for Chapter 7 or 13 may use it to delay collection actions, stop wage garnishments and repossessions, and negotiate a manageable debt repayment schedule.
Once an individual files, their creditors are divided into classifications like the following:
- Priority creditors
- Administrative creditors
- Secured creditors
- Unsecured creditors
The reorganization plan proposes how the debts will be restructured, how much each creditor category will be paid each month, and the payment terms. The higher class of creditors, such as priority or administrative creditors, must be paid in full before everyone else gets their share. Most plans last an average of five years, but with court approval, they could be extended to 10 years.
Should You File Chapter 11?
As a rule, no one really files for Chapter 11 bankruptcy as a first choice. Not only is it a more challenging option to negotiate, it is also a lot more expensive because it takes more time for the bankruptcy attorney to put together the required paperwork. In addition to the attorney fees, a filer can expect to pay the following:
- Filing fee of $1,717 (as of April 2017)
- U.S. Trustee fees, which are $250 and up each quarter
- Costs associated with preparing and mailing the plan of reorganization, disclosure statement, and voting ballots for creditors
Despite the added expense, Chapter 11 bankruptcy can give an individual debtor the financial fresh start they need if:
- Their household median income exceeds the Florida threshold for Chapter 7 (and they subsequently fail the means test).
- Their unsecured debt exceeds $394,725 and/or they owe more than $1,184,200 in secured debt, which are the limits for Chapter 13.
- They need to extend their mortgage repayment period to more than five years, which is the Chapter 13 limit.
- They want to reduce the creditor’s lien on a vehicle to its fair market value, but the car was financed within 910 days of their bankruptcy petition. While Chapter 13 disallows ‘cramming down’ under this circumstance, it is permitted under Chapter 11.
- They received a Chapter 7 discharge within the past four years or a Chapter 13 discharge within two.
Please keep in mind that the income-related maximums mentioned above are currently accurate, but subject to change in the future.
To discuss the possibility of filing Chapter 11 to receive the debt relief you are seeing, call Rodriguez Law, P.L. at (305) 262-8226 or contact us through our website. We can help you stop creditor harassment, eliminate most debts, and repay others at a rate you can afford.
