Chapter 11

Chapter 11
Chapter 11

Chapter 11 is known as a business reorganization.  Both Individuals and Entities (such as corporations and LLCs) can file chapter 11.  The reason an individual would file a chapter 11 is typically because their debt load is too high for filing chapter 13.  If an individual's secured debt is more than $1,081,000.00 or their unsecured debt load exceeds $360,475.00 and Chapter 7 and Chapter 12 are not otherwise viable, then a Chapter 11 is really the only alternative that the Individual can entertain, due to their debt being too high to qualify for a chapter 13.  This is not very common in Michigan, but can make a bankruptcy much more complicated.

A Chapter is quite cost prohibitive for the average person, because the filing fees are in excess of $1,000.00.  That is not including the cost for hiring an attorney to deal with the Chapter 11.  Additionally, there is no standing trustee appointed, unlike in other cases.  The Debtor is in charge of managing their bankruptcy estate, but the US Trustee oversees the case, and the Debtor must pay a quarterly fee to the US Trustee based on the amount being disbursed in the Chapter 11 by the Debtor.  A committee can be formed by unsecured creditors, and the unsecured creditors can vote for or against any plan proposed by the Debtor, which can make having a successful plan much more difficult.  Chapter 11 does, however provide more flexibility in regards to proposing a plan of reorganization, and is not limited to 5 years unlike a Chapter 13 case.

Entities, such as corporations and LLCs can obtain a discharge in a chapter 11, unlike a chapter 7.  However, small businesses face many obstacles in completion of a chapter 11 due to their lack of bargaining power.  The unsecured creditors can refuse to approve the plan, which will likely result in the liquidation of the small business.  As a result, it is very important for a small business to plan a chapter 11 well ahead of time, and to make sure the vast majority of its creditors are on board with the proposed plan, to enhance the likelihood of success with a chapter 11.   
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