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  Chapter 11 Bankruptcy -

      The ultimate goal of a Chapter 11 case is to have a reorganization plan confirmed by the court. There are often a number of hurdles that need to be jumped before the case is ready for plan confirmation. As a result, it is often 6-12 months into the case before the debtor is ready to file his plan. In the meantime, he will have been undertaking a variety of preliminary tasks to get the case into shape for a meaningful plan.

Other Chapter 11 Pages

      View these pages for more information on Chapter 11.

The Debtor in Possession
The Examiner
Reorganization of the Debtor
The Trustee
Creditors Committee
Filing Lawsuits
Creditors' Rights
Dismissal/Conversion of Chapter 11 Cases
Selling of Assets
Reorganization Plan
Plan Procedures
Plan Provisions
Common Chapter
Payment of Interest
The Chapter 11 Attorney
Sitemap for Chapter 11 Content

Who Files Chapter 11

      Most individuals filing Chapter 11 are involved in business in some capacity, either as sole proprietors, or as principals of a corporation or partnership. A number of Chapter 11 cases are filed because the individual has guaranteed the debts of a corporation, and the corporation is experiencing financial difficulties. Often, the corporation is in its own Chapter 11, and the individual files his own, related case, later, in response to collection actions based on the guarantees. These are often called "piggyback" Chapter 11's.


The Chapter 11 Attorney

      A Chapter 11 is quite an active process for debtors and their attorneys. It requires a true convergence of skills.

Active Process of a Chapter 11 Attorney
Transactional ability to prepare proper and accurate financial statements and court reports

Legal analysis to evaluate the validity of claims against the debtor, as well as potential claims or causes of action which the debtor may have against others

Litigation ability to make the required Chapter 11 court appearances at status conferences and hearings

Appear with the debtor at the initial debtor interview ("IDI") and give an exegesis of the case and its prognosis for success

Attend the meeting of creditors and deal with creditors as well as others

Filing and prosecuting such lawsuits (adversary proceedings) and requests for court orders (motions or contested matters), as may be required to fully prosecute the debtor's Chapter 11 case


Reorganization/Chapter 11

      Chapter 11 is titled "Reorganization". There are no debt limitations, minimum or maximum. Generally, any person who is eligible to file Chapter 7 bankruptcy can file Chapter 11, with the exception of stockbrokers and commodity brokers. The term "person" is defined in the Bankruptcy Code as individuals, partnerships and corporations. Limited liability companies are treated as companies and are eligible to file. The chapter is not entitled "Business Reorganization", and there is no requirement that the debtor be engaged in business.

Ineligibility for Relief

      An individual is not eligible for Chapter 11 relief if he was a debtor in a prior case that was dismissed in the past 180 days for willful failure to obey court orders, or where the debtor voluntarily asked for dismissal of his case after a secured creditor had filed a motion for relief from stay to foreclose on property.

Credit Counseling Requirements

      Completion of a credit counseling course prior to the filing is required for individual (but not corporate or partnership) debtors under any chapter of bankruptcy, including Chapter 11. There are exceptions for unusual circumstances where such counseling was not available or where a true emergency filing was needed.

Relevant Articles

Chapter 11 Versus Chapter 13

      As a general rule, it is much cheaper and easier, and the results about the same, for an individual to file a Chapter 13 case. Most Chapter 11 cases filed by individuals are filed because their debts exceed the eligibility limits for Chapter 13. In Chapter 11, there are substantially more legal, administrative, accounting, and reporting requirements, along with extra court fees and other costs. In Chapter 13, the standard form plan is often only a 1-pager. In Chapter 11, on the other hand, the plans are all custom-drafted and usually ten pages or more, and are required to be accompanied by a detailed disclosure statement which is often 15 or more pages, plus exhibits.
Chapter 11 Discharge

      A Chapter 11 discharge is not quite as broad as the Chapter 13 discharge. The Chapter 11 discharge prior to BAPCPA typically came when the plan was confirmed. Now, the discharge is similar to Chapter 13, and does not come until all plan payments have been completed. A Chapter 13 debtor can usually dismiss his case at any time; in Chapter 11, the debtor can ask for dismissal, but the judge may decide to convert it to Chapter 7 if she believes that conversion would be in the best interests of creditors and the estate.

Real Estate

      In recent years, a number of Chapter 11 cases have been filed by debtors attempting to keep real estate from being foreclosed upon, and to try to keep the property by selling off other assets or modifying the terms of the loan under a Chapter 11 plan. These filings are likely to remain constant, given the difficulties experienced in the real estate market and the lack of a true economic turnaround.

      Some bankruptcy professionals believe that the current Chapter 13 limits should be increased, up to perhaps $ 2-3 million in secured debt, and 750k-$ 1 million of unsecured debt. It is more and more common to see real estate loans which are "underwater", meaning in effect that the mortgage debt is unsecured rather than secured, and this can operate to put a debtor over the Chapter 13 limits.


"Glorified Chapter 13's"

      Some cases are filed by consumer debtors not involved with business in any capacity, but with credit card or mortgage debt in excess of the Chapter 13 limits. These debtors may have illiquid assets, and a desire to manage the debt through a 5-year payment plan. These are often called "glorified Chapter 13's". In states with more expensively-priced real estate, such as California and New York, Chapter 13 relief has increasingly become less available to such debtors, leaving the more expensive Chapter 11 as the only viable option.

Written by Henry Rendler

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