Chapter 11 Bankruptcy Basics
Chapter 11 is a section of the bankruptcy code that permits individuals and businesses to either liquidate or reorganize debt. Not to be confused with Chapter 7 and Chapter 13 bankruptcy cases, a Chapter 11 filing involves reorganization of extensive assets and debts.
Who Can File for Chapter 11 Bankruptcy?
Chapter 11 is available for both individuals and businesses, though it is most often used for businesses. As an individual debtor, you can reorganize the debts that are in your name in an effort to restructure your finances and protect your assets. If you file as a business, you can still reorganize the debt but you are limited to business debts alone.
Typical Chapter 11 Business Cases
Most chapter 11 business cases deal with the restructuring of multiple types of debt including: priority tax debt, secured debt, unsecured debt, and leases, while also seeking to protect business assets.
Priority Tax Debt
Chaper 11 can be a useful tool to reorganize past-due taxes incurred by your company. Tax debts such as property taxes, income taxes, and payroll taxes can be restructured to allow you to continue to operate the business but also meet your tax obligations. While most tax obligations usually get paid off during a five-year period, Chapter 11 allows you to negotiate repayment terms between your business and the taxing authority on grounds that are acceptable to both parties.
A Chapter 11 filing permits you to seek payment based on collateral for the current value of the property, as opposed to what is owed. Examples of collateral include real estate, business equipment, and vehicles.
For example, if you have a fleet of 10 service vehicles that are worth approximately $100,000 but you owe $250,000 on them, you can ask the court to allow you to pay only what they are worth as opposed to what is owed — thus allowing your business to reduce its expenses to become more profitable.
Unsecured debts such as company credit cards and unsecured loans can help a business get up and running, or keep up with ongoing operating costs, but frequently become major burden on future profits. A Chapter 11 bankruptcy filing allows you to restructure your unsecured debt and make payments towards it with company profits in a lump sum at the conclusion of your case, or in installments over several years. Ideally, you and your unsecured creditors will agree upon how much and when you pay, but if a compromise cannot be reached among the parties, then the judge will decide the payment schedule and you will be bound by his or her decision.
Typical Chapter 11 Cases Filed by Individuals
Chapter 11 cases are seldom filed by individuals. However, when individuals do file for Chapter 11, it’s usually for one of two reasons: real estate investment reorganization or reorganizing unsecured debts that are too high to qualify for Chapter 13 relief.
How to Succeed in Chapter 11 Bankruptcy
As long as you successfully negotiate the treatment of each participating creditor in your bankruptcy, you should be able to restructure your business or individual debt in a way that positions you to emerge from bankruptcy lean and profitable. This is easier said than done, and often requires input from a qualified Chapter 11 bankruptcy lawyer.
Contact a Maryland and Washington D.C. Chapter 11 Bankruptcy Attorney
To learn about typical procedures in a Chapter 11 case and see if it is right for you or your business, contact our office to schedule a free initial consultation. Call us today at 301-731-3303, or fill out a contact form through this site and a representative from our firm will contact you shortly.