How can an individual benefit from a Chapter 11 bankruptcy?
Chapter 11 bankruptcy has become well known through large cases such as those filed by the Lehman Brothers, General Motors, Chrysler, Enron and Delta Air Lines. However, it is less well known that the same benefits awarded through a Chapter 11 bankruptcy – the ability to restructure debts and financial affairs – are also available to Georgia residents.
A Chapter 11 case can allow a debtor to stop pending collection actions, lawsuits and foreclosures, as well as to sell or surrender unnecessary assets, repay debts over time, and reduce the amount of debt that is to be repaid.
Filing a Chapter 11 bankruptcy case can enable an individual with high amounts of debt to restructure it so they can keep functioning. While it is usually more expensive to file a Chapter 11 case than a Chapter 7 or 13 one, it can be filed by individuals that fall outside of the limits of a Chapter 13 bankruptcy. These limits are $1,081,400 for secured debt and $360,475 for unsecured debt. When considering whether to file a Chapter 11 case, it will be necessary to look at the amount of unsecured versus secured debt you have as well as the amount of revenue you will have to make a plan for debt repayment.
Filing a Chapter 11 case also has a few other benefits:
If you want to keep your primary residence during your bankruptcy and are behind on your mortgage payments, you will not be able to file a Chapter 7 to prevent the loss of your home. While a Chapter 13 bankruptcy is the typical solution, this type of case will mandate that all of your mortgage arrears must be paid within a 5 year period in equal monthly payments. However, if you haven’t paid your mortgage in months or over a year, this can present a significant financial burden. With a Chapter 11 bankruptcy case, you are not bound by the five year limit and can spread out the payments over a longer time period.
In bankruptcy, a creditor’s lien can be reduced to the fair market value of the property securing it, meaning your balance can be reduced to the market value instead of the amount you owe. However, there are limitations to this, such as the “hanging paragraph” in Chapter 13 that says that any car loan obtained within 910 days of your bankruptcy case cannot be crammed down to the value of the vehicle. This limitation does not exist in a Chapter 11 case, providing for significant savings.
Even if you just received a discharge under a Chapter 7 or 13 cases, you can still file a Chapter 11 bankruptcy and receive a discharge once you complete all of the payments under your plan.
A Chapter 11 can also provide an individual the time needed to properly reorganize their affairs for liabilities considered non-dischargeable under bankruptcy code. Among such liabilities are payroll taxes – if your business does not pay these taxes, you can be held personally liable. Filing a Chapter 11 can stop any penalties from accruing on these unpaid taxes while your attorney works out a manageable payment plan with the IRS.