Chapter 11 Overview

Chapter 11 bankruptcy is intended to permit the reorganization of businesses with heavy debt burdens. The debtor files a proposed plan for profitability post-bankruptcy, which may include reducing costs and seeking new sources of income while temporarily postponing payment to creditors. Chapter 11 bankruptcy avoids total liquidation of the business, provides more time to develop and file a plan, and gives the opportunity to reorganize. On the other hand, Chapter 11 is also more time-consuming and costly than other forms of bankruptcy.

Either the debtor or its creditors may file a petition for Chapter 11 bankruptcy. If the creditors file the bankruptcy is referred to as an involuntary petition. Filing a petition puts an automatic stay on all collection actions unless the court indicates otherwise. The debtor then begins to develop their reorganization plan. If a reorganization plan is developed that the court agrees was structured in good faith and in compliance with the law the court will confirm the plan and debts that existed before the confirmation date but not directly addressed in the plan are discharged and the debtor is obligated to pay the remaining creditors in accordance with the reorganization plan.

Chapter 11 bankruptcy is most frequently used by large corporations, though small businesses, and in rare cases even individual consumers are eligible. Follow the links to learn more about these situations and the common risks and benefits for filers of this sort.

Chapter 12 Basics

Another form of reorganization called Chapter 12 is designed specifically for "family farmers" or "family fishermen" who have regular annual income. Under Chapter 12 debtors can propose a repayment plan to make installment payments to creditors over a three to five year time. Plans of this sort must propose to pay 100% of child support, alimony, and other domestic support claims. Repayment plans longer than five years in length are not permitted.

Only farmers or fishermen can use Chapter 12 to manage their debt. Requirements include that the individual or the married partners be engaged in farming or commercial fishing, the total debts cannot exceed $3,237,000 for farmers or $1,500,000 for commercial fishermen, there are also limits on the total amount of fixed debts relating to the farming or fishing, and more than 50% of their gross income must have come from farming or fishing in the previous year. A corporation or partnership may be eligible to file for Chapter 12 bankruptcy if it is closely held by a family and does not have publicly traded stock.

Learn More About Chapter 11 and Other Reorganizations from a Lawyer

Being in debt can be overwhelming, but bankruptcy may be an option to help with your debt woes. Unfortunately, even picking the type of bankruptcy that's right for you can be a daunting task. Luckily, you don't have to go through this process alone. If you're considering filing for bankruptcy, it's a good idea to consult with an experienced bankruptcy attorney who can explain the options based on your particular situation.