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There is no one-size-fits-all approach to bankruptcy. Depending on whether you’re an individual, a business, or a consumer, different chapters of bankruptcy may be more suitable for your needs. For individuals and businesses alike, Chapter 7 can offer significant benefits, while Chapter 13 may be the optimal choice for other consumers. In the case of businesses, Chapter 11 often proves to be the most advantageous option. Determining the ideal chapter within the bankruptcy code is the crucial first step in the process.
In Los Angeles County, our experienced Chapter 11 bankruptcy attorney understands the importance of tailoring his services to your specific financial circumstances and preferences. Recognizing the high stakes involved in businesses, we are committed to utilizing our extensive resources and skills to effectively advocate for our client’s interests in a strategic and timely manner.
Chapter 11 bankruptcy was originally designed for businesses but individuals may also file under this chapter. Those individuals who exceed the debt limits of Chapter 13 bankruptcy are required to file under Chapter 11. The current debt limits for Chapter 13 are $1,149,125 for secured debts and $383,175 for unsecured debts. However, these debt limits may appear low for individuals who own multiple properties that have significantly dropped in value.
There are many advantages of being in Chapter 11 as opposed to Chapter 13. When individuals file for Chapter 7 or Chapter 13 bankruptcy, they are subjected to a means test. However, the means test does not apply to individual debtors in Chapter 11 cases. This means that they may propose repayment plans that are less than five years, allowing them to pay less of their disposable income to unsecured creditors.
In Chapter 11, debtors can modify their secured debts such as car loans and mortgages without time restrictions. Unlike Chapter 13 cases, where the debtor must have financed the vehicle more than two and a half years ago before the loan can be reduced to the value of the car, chapter 11 cases have no time restriction. This means that even if the debtor purchased a vehicle a year ago and the loan is more than the value of the car, they are only required to pay back what the car is worth and not the original balance. Additionally, in both Chapters 11 and 13 debtors can modify the mortgages on their rental properties based on the current value of the property, but primary residences cannot be modified.
Once the values of secured properties have been established, the debtor will propose a plan of repayment for the secured and unsecured debts. The duration of the plan can be controlled by the debtor, such as a three-year or longer plan. The plan must be submitted to the creditors for a vote, and for the case to proceed forward, the debtor must receive at least one vote from the creditors. If there are remaining creditors that object to the plan, the court may force them to accept the plan, which is called a “cram down.” The advantage of Chapter 11 bankruptcy is that the debtor has control over the content of the plan and may propose terms that are to their benefit.
The reorganization plans are the heart of Chapter 11 bankruptcy. They are essentially agreements between creditors and debtors. It is often necessary for the business to reduce its size, release assets, or minimize expenses. It is important to allow the business time to create a reorganizational plan. The period between the initial creation of the plan and the acceptance by creditors can be up to 18 months or longer.
To develop an acceptable reorganizational plan, there may be several steps involved.
The debtor is required to make the payments following the plan once it has been approved.
Creditors can claim that during the creation of a reorganization, the owner or manager has mismanaged the company. A bankruptcy judge may dismiss the claims of creditors or dismiss the bankruptcy petition. Additionally, a judge can convert the Chapter 11 petition into a Chapter 7 bankruptcy. However, most creditors typically accept the reorganization plans.
Chapter 7 bankruptcy can be risky as it involves the liquidation of assets. In this type of bankruptcy, most, if not all, creditors will not receive payment.
Creditors can claim that during the creation of a reorganization, the owner or manager has mismanaged the company. A bankruptcy judge may dismiss the claims of creditors or dismiss the bankruptcy petition. Additionally, a judge can convert the Chapter 11 petition into a Chapter 7 bankruptcy. However, most creditors typically accept the reorganization plans.
Chapter 7 bankruptcy can be risky as it involves the liquidation of assets. In this type of bankruptcy, most, if not all, creditors will not receive payment.
Many people confuse Chapter 11 with Chapter 13 bankruptcy because Chapter 13 also allows for reorganization. However, there are key differences between the two. Unlike Chapter 11, which allows for reorganization plans to last between three and five years, Chapter 13 plans typically run from three to five years as well. In a Chapter 13 plan of reorganization, a trustee manages the disposable income, while in a Chapter 11 bankruptcy, the debtor retains control over the business or assets.
Chapter 11 is the most common chapter used by businesses, while Chapter 13 is more popular among consumers.
Anyone or any business may legally declare bankruptcy under Chapter 11 including:
In most cases, Chapter 11 does not have debt or income limitations. This is why Chapter 11 can be better suited to an individual than Chapter 13 in some cases, as Chapter 13 has strict debt requirements.
The following list includes those individuals or entities who are generally not eligible for Chapter 11 bankruptcy.
Anyone can file for bankruptcy under Chapter 11, except for those listed above. However, this does not mean that everyone or every entity will choose to do so. It is important to carefully consider the advantages and disadvantages. You can assess the pros and cons to determine if Chapter 11 bankruptcy will serve your interests or align with your business and financial needs.
The costs to file Chapter 11 bankruptcy are based on the Bankruptcy Court’s Miscellaneous Fees Schedule, which includes filing and administrative fees, as well as attorney fees. The fees are the same regardless of where you file for bankruptcy.
The filing fee for Chapter 11 bankruptcy can vary but is typically around four times higher than the fees for Chapter 7 or 13. The cost of Chapter 11 bankruptcy alone exceeds a thousand dollars.
The U.S. must receive fees from Chapter 11 debtors, and the Trustee will collect these fees on a quarterly schedule throughout the bankruptcy. The amount of these fees can range from $250 up to $10,000, depending on the amount of money or property disbursed as part of the reorganization.
Having legal representation can also be crucial in Chapter 11 bankruptcies, as it can significantly impact the outcome of the reorganization plan. Legal fees are usually higher for Chapter 11 bankruptcy cases due to the broader range of services and advice provided. The specific amount you pay will depend on the services and benefits offered by your bankruptcy attorney.
If you are considering Chapter 11 bankruptcy, whether for your business or personal finances, it is advisable to retain competent legal representation. A skilled bankruptcy lawyer will offer crucial legal services such as advising, assisting, and explaining important aspects of the process.
A bankruptcy attorney can also help you to stay on track so you can properly and timely implement the reorganization in a Chapter 11 bankruptcy.
The reorganization is the cornerstone of Chapter 11 bankruptcy. To fully benefit from bankruptcy and have qualifying debts discharged, it is crucial to complete the plan unless certain circumstances exist and are approved by the judge.
Even if the plan is not followed for a specific period, the Chapter 11 discharge remains valid.
However, it is important to exercise caution as a creditor or trustee may accuse you of fraud if they believe that you obtained a discharge by not adhering to the terms of your reorganization plan. In such cases, a trustee or creditor may request the revocation of the discharge. If the court grants this request, your Chapter 11 bankruptcy will be considered unsuccessful. Failure to comply with the plan may also expose you to lawsuits or other collection actions.
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