Chapter 11: Common Questions about US Bankruptcy Code

Chapter 11 bankruptcy is a little-known, commonly-misunderstood form of bankruptcy in the United States bankruptcy code. Most people are aware of a chapter 7, which is a total liquidation of assets in order to pay debts, and a chapter 13, which is a scheduled repayment plan designed to help individuals get back on their feet without having to give up their assets... but a chapter 11 is another option to consider.

Understanding Chapter 11 

Typically used by businesses and known as a business bankruptcy, chapter 11 functions much like a chapter 13 in that it is designed as a repayment bankruptcy rather than liquidation. Below are some common questions about chapter 11 bankruptcy that should help give you an informational background in how it works and how it might apply to you. 

• Is chapter 11 only for businesses? 

No. In spite of its reputation as a business bankruptcy and its similarity to a chapter 13, chapter 11 can also be filed by individuals.

• Why would I file a chapter 11 instead of a chapter 13 as an individual?

Chapter 13 bankruptcy imposes certain limits on how much debt and how many assets an individual can have in order to file. If a person falls outside of these limits, but still wants to file a repayment-plan bankruptcy, a chapter 11 may be the answer. 

• What are some key differences between chapter 11 and chapter 13? 

Chapter 11 bankruptcies are quite a bit more complex than chapter 13, meaning they are also more time consuming and expensive to file. While chapter 13 bankruptcies involve a trustee appointed by the court, in a chapter 11, an individual can act as his or her own trustee if all required conditions are met.

• How are chapter 11 and chapter 13 bankruptcies similar?

Both are repayment bankruptcies, in which payment plans are established with creditors, and assets are not typically liquidated. Both provide the filer with an automatic stay, meaning as soon as the petition is filed no action can be taken against the person or business by a creditor. Both buy the filer some time and space to reorganize their income versus debt ratio and to get back on their feet.

• Is there a way to speed up the process of a chapter 11?

Yes; as with a chapter 13, if the amount of assets and/ or debts involved in the bankruptcy is not above a certain limit, the bankruptcy can be put on a “fast track” for filing. The limits under which this is possible change on a regular basis, so check with a bankruptcy lawyer for current amounts. In a fast track bankruptcy, certain steps of the filing process are not required, and others are expedited and simplified in order to get the process completed more quickly while still having the same end result.

Getting Help

Deciding which chapter of bankruptcy to file and actually going through the filing process isn't a simple matter. You will want to have an experienced bankruptcy lawyer guiding you and helping to make sure that you complete all requirements of the bankruptcy filing properly and that you have made the best choice on which chapter of bankruptcy to file.