Chapter 11 bankruptcy is the most involved, difficult, and expensive of all other bankruptcy proceedings. The current filing fee for a Chapter 11 is $1,717.00, plus any legal fees. A Chapter 11 is typically used as a vehicle to reorganize business debts, and can be used for individuals as well. An individual will file a Chapter 11 only when he is unable to qualify for a Chapter 13. There are certain limitations that might preclude a debtor from being able to file for a Chapter 13: for the 2015 calendar year, the individual’s debt may not exceed $383,175 for unsecured debt, and $1,149,525 for secured debt. For unsecured debt think credit cards, medical bills, lawsuits, judgments, and tax bills. Any debt that is secured by a lien over the property is a secured debt – mortgages, car loans, and purchase money loans. This is why celebrities who file for a bankruptcy typically file for a Chapter 11 instead of a Chapter 13, because their debts exceed the limits imposed by bankruptcy laws. The debt limits are adjusted every three years according to inflation. On April 1, 2016, the Chapter 13 debt limit is set to increase.
Just like in a Chapter 13 proceeding, the objective of a Chapter 11 is for the debtor to successfully reorganize its affairs so that it may repay debt, preserve assets, and continue its business operations. Unlike a Chapter 13, a Chapter 11 proceeding is time-consuming and complex. In order for a debtor to reorganize its debts, he must propose a plan to the court, which in return must be confirmed. Consider the following example: Debtor has five different creditors to whom he owes $20,000 each for the total amount of $100,000. The debtor’s lawyer proposes a plan to the court that only allows for each creditor to be paid $10,000 each. This plan must now be approved by the court (“confirmed”) in order for the bankruptcy to move forward. A chapter 13 typically requires only one court hearing to obtain confirmation. In a Chapter 11, at least two court hearings are required to attain confirmation. Another difference is that the creditors in a Chapter 11 are provided with the opportunity to vote for or against the plan, and the normal time for a Chapter 11 plan to get approved takes about 4-6 months, as opposed to 2 months in a Chapter 13 and no voting rights.
On the upside, a Chapter 11 can work wonders for a small or large business. The Microsoft corporation or the bodega on the corner are both afforded the opportunity to reorganize their debts if needed. The major benefit of a Chapter 11 is that a business in serious financial condition may continue to operate and serve its customers without the threat of immediate closure by any of its creditors. The downside of a Chapter 11 is that the financial affairs of a business are no longer private. The debtor is required to file regular monthly reports with the court detailing all revenue and expenses. The debtor also runs the risk of having the filing converted to a Chapter 7 or being dismissed if he fails to comply with certain operating rules set by the bankruptcy court.
Mishiyeva Law- Bankruptcy Lawyer NYC 80 Wall Street New York, NY 10005 (646) 736-6328 kmbankruptcylawyerny.com