The Cassidy Law Firm Blog

Friday, October 29, 2021

What Is Chapter 11 Bankruptcy?

Sometimes, we find ourselves with financial problems that seem insurmountable. Minimum payments become impossible to make, creditor actions loom in the distance or are currently taking place, and all that is wanted is a way out, a lifeline. Bankruptcy can provide hope for a new financial future. It can be a fresh start. Once you file for bankruptcy, collection actions will stop. An automatic stay is put in place that will prohibit the majority of creditors from proceeding with collection efforts. That means that payment requests and property seizure as well as eviction or foreclosure, among other collection processes will temporarily stop. Before all this happens, however, you have to file for the right kind of bankruptcy. This may be Chapter 7, Chapter 13, or, in some cases, Chapter 11.

What is Chapter 11 Bankruptcy?

While most people may know about Chapter 11 bankruptcy as the type of bankruptcy corporations will opt for when in financial trouble, this kind of bankruptcy is also available for individuals. In most cases, an individual will opt for Chapter 11 if they have too much income or too much debt to qualify for Chapter 7 or Chapter 13 bankruptcy. The person may have too much debt to qualify for Chapter 13 bankruptcy. Additionally, the person may hold too much in non-exempt assets to think that Chapter 7, a liquidation bankruptcy, is the best option.

Chapter 11 is commonly referred to as a “reorganization” bankruptcy. This is due to the fact that it allows businesses and individuals to restructure debts and make arrangements for a reduced payment schedule all while maintaining ownership of assets. The majority of the time debtors filing Chapter 11 bankruptcy are permitted to keep assets including business ownership interests, vehicles, and real estate. When an individual case is too complex for a Chapter 13 filing, Chapter 11 can be a great alternative.

There is no bankruptcy trustee put in charge of the filer’s business and other property in Chapter 11 filings. The debtor continues overseeing everyday function as a “debtor in possession” while bankruptcy proceedings are ongoing. Through Chapter 11 proceedings, the aim is to develop a financial plan that will be mutually agreeable to the court, creditors, and filer while allowing the business to remain open and grow. There are many options in how such a plan will be structured. Sometimes, payment due dates are amended and other terms are modified, including the interest being charged on the debt. In some cases, a debt may be discharged entirely. The majority of Chapter 11 plans, however, involve at least a partial downsizing of the business operations in order to make expenses more manageable and make assets more accessible.

The plan must be approved by all creditors. Once approved, the plan becomes a contract and, thus, legally binding. At this point, all qualifying debts are discharged effective immediately.

New Jersey Bankruptcy Attorneys

If you are considering bankruptcy, now is the time to consider your options. Talk to the dedicated bankruptcy team at Cassidy Law Firm about what type of bankruptcy filing will be best for you. Contact us today.


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