Chapter 11 bankruptcy allows individuals and businesses to consolidate debt into one monthly payment while continuing to meet day-to-day business or personal needs. Attorney Ted Troutman of Troutman Law Firm, P.C., in Portland, OR, has been practicing in bankruptcy law for over three decades and provides trusted advice when it comes to deciding which debt management solution is best. In most cases, Chapter 11 is reserved for business entities, both large and small, but individuals are sometimes able to resolve overwhelming debt by turning to this type of bankruptcy.
As with any bankruptcy case, a Chapter 11 matter begins with the filing of a petition. This can be done by an individual or by a business. An individual qualifies for a Chapter 11 bankruptcy if the debt load is more than what is covered under a Chapter 7 or a Chapter 13 bankruptcy case. The Chapter 11 petition includes a proposed plan for repayment of debts, outlining how each creditor will be repaid and in what amount. The creditors are permitted to review the plan and either accept the terms or object to the proposal.
Mr. Troutman has focused on bankruptcy law for more than 30 years. He can carefully review your debts, assets, and other relevant factors so you can make a decision regarding which chapter to file.
If an objection is filed, your attorney will negotiate with the creditor or allow the court to resolve the difference if an agreement cannot be reached. Final payment terms are memorialized in an order confirming the plan of repayment, and the debtor then makes one payment per month to cover all debts. The payment is distributed on a pro rata share to each creditor for the duration of the plan term.
Knowing how a Chapter 11 will benefit you as an individual or as a business is a good place to start when considering whether to file.
When debt limits exceed what is allowed under a Chapter 7 or 13, an individual may elect to file a Chapter 11. This is usually the case for celebrities and athletes with large incomes as well as large debts. An individual Chapter 11 can function in much the same way as a Chapter 13, in that a plan of repayment is proposed and eventually confirmed by the court. Creditors of an individual in a Chapter 11 case have the ability to review the plan for payment terms and either accept or reject those terms. The court examines whether the final plan is feasible in terms of repayment, whether the individual debtor is acting in good faith, and has the final say in what assets are sold and what assets are kept.
For a struggling business, Chapter 11 is a way to maintain business operations while repaying creditors. This type of case is typically complex, with large business loans and the continued viability of the enterprise at stake. Creditors can file a case for a business (an involuntary Chapter 11), or a business may proactively take charge and initiate a case on their own. The same rules apply as far as proposing repayment terms and creditor involvement in accepting those terms, with court confirmation of the final plan. In business cases, the court also looks at the feasibility of the plan, whether the debtor proposed the plan in good faith, and when assets can be liquidated for the benefit of creditors. A business filing Chapter 11 also obtains permission to meet daily needs, such as payroll and inventory requirements.
Typical Chapter 11 cases allow a debtor to deal with the following types of debt:
Secured debt: Secured debt is that debt for which repayment is secured by collateral, where the debtor grants the lender an interest in the property until the loan is repaid. For an individual, this is likely a home or car, and for a business, it may be large equipment or floor plan lending for inventory. When secured debt goes unpaid, the creditor has the option to enforce its security interest by foreclosure or repossession. Filing Chapter 11 bankruptcy prevents a creditor from taking this action, and instead allows a debtor to propose a repayment plan. The specific terms of repayment depend on the case, and every matter has a different outcome.
Unsecured debt: Credit cards and medical bills are the most common forms of unsecured debt. Repayment for this debt is not secured by any piece of collateral, but the debt is still collectible. Stopping a collections lawsuit for unsecured debt can be accomplished by filing Chapter 11 bankruptcy, and give the debtor the opportunity to repay less than what is owed.
Priority tax debt: Tax debts are due regardless of whether bankruptcy is filed, but can be handled in bankruptcy so large fines and penalties do not accumulate.
Leases and executive contracts: If bankruptcy is filed during the term of a lease or unexpired contract, the remaining payments are debts that can be included in the bankruptcy. Depending on the type of executory contract, the payments may be eliminated or significantly reduced.
The best way to determine if filing Chapter 11 is the right choice for you is to meet with a bankruptcy lawyer. Mr. Troutman has focused on bankruptcy law for more than 30 years. He can carefully review your debts, assets, and other relevant factors so you can make a decision regarding which chapter to file. If you choose to file Chapter 11, he will guide you through the entire process.
With his help, you will file a voluntary petition with the bankruptcy court to begin the process. He will then help you develop a reorganization plan to present to the court and creditors. Generally, debtors have four months after filing their petition to develop this plan. However, the court may grant an extension. Mr. Troutman will ensure your reorganization plan is submitted on time and that it serves your best interests, as well as those of the creditors.
Whether you are a large or small business, or an individual with a large amount of debt, the professionals at Troutman Law Firm can help get your finances under control. We develop debt management solutions that meet your specific needs and treat you with dignity and respect. Contact us online or call to speak to our team.
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