Bankruptcy is defined as legal situation in which a debtor cannot fulfill their monetary obligations. Debtor bankruptcy is when the person who owes the money files for it. There are six types of debtor bankruptcy, but the two most common are Chapter 7 and Chapter 13. Chapter 11 bankruptcy is for businesses
Chapter 7 is called liquidation, and it is where an individual surrenders their assets to a trustee who distributes the proceeds to the persons owed. Chapter 13 is where the debtor retains all of their possessions but promises to surrender a portion of their earnings in the future to the creditors. Sometimes the company or person who is owed the money will file bankruptcy against the debtor, called involuntary bankruptcy. Debtor bankruptcies give the person or company a new start financially, but the only fiscal obligations that are not included in this are student loans.
Basically, debtor bankruptcy completely wipes the person’s slate clean of any money that is owed including credit cards or mortgages. However, their credit is completely damaged and they need to start building that up again as well. Chapter 7 bankruptcies are only allowable once every eight years, while Chapter 13 debtors have a period of three to five years to pay everything off. It has been made harder for individuals to take the easy way out and declare bankruptcy through a means test as well as going through counseling before filing. There are also many agencies out there can help consumers consolidate their debt before the need to file.
In regards to Chapter 11, you can be a sole proprietor or a corporation and be eligible for Chapter 11 bankruptcy. This chapter of bankruptcy allows a debtor to enter into an agreement with creditors under which all or part of the business continues to remain in working order. There are restrictions to how much debt you have incurred prior to being able to file Chapter 11. You must have unsecured debts of a minimum amount of $336,900.00 or a secured debt of a minimum amount of $ 1,010,650.00.
Not only do you have to incur such an enormous amount of debt but also the court filings fees are expensive. After you pay these fees you have to continue performing specific operation procedures. Once your Chapter 11 bankruptcies has been filed. A Trustee of the United States Office carries out reporting procedures, as you are required to keep extensive reports of business operations.
There is basically a six-step process in chapter 11 filing. First the filing company develops a plan with committees. Next a disclosure statement and a reorganization plan are prepared and filed with the court. Then SEC reviews the disclosure statement to see if it is complete. Creditors will then vote on the prepared plan. The company will then carry out the plan by distributing the payments set about by the plan. This is the basic information on Chapter 11 bankruptcies and if you are interested in further details it is best to contact a bankruptcy attorney to evaluate your personal situation. This will allow you to know if Chapter 11 is the correct choice for your business.
If you’d like to learn more: call us to speak directly with an attorney for a free, no obligation, consultation to see if you qualify for bankruptcy and if it is the right decision for you and your family or your business.
Wessler Law Firm is a small family owned law firm specializing in bankruptcy law since 1982.
Disclaimer: This article is meant for reference only, and is not intended to be legal advice.
For legal counsel regarding your situation, please consult an attorney licensed in your state.