When Should An Individual File For Chapter 11 Bankruptcy?
Understanding the types of bankruptcy that an individual can be eligible to file for, versus those that a business can be eligible to file for, can be complicated. If you are considering bankruptcy as an individual or married couple, you might have started doing some initial research into your bankruptcy options. You have likely come across information about Chapter 7 bankruptcy and Chapter 13 bankruptcy, but you have also likely come across information about Chapter 11 bankruptcy. Depending upon what you currently do for income and how much of your debt comes from your business operations, you might have also encountered information about Chapter 12 bankruptcy, or Subchapter V bankruptcy. All of these terms can be extremely confusing, especially if you do not have any experience with bankruptcy. Indeed, you may be wondering what your options really are, and whether there is a specific type of bankruptcy you should be focused on.
Our West Palm Beach bankruptcy lawyers want to provide you with more information about personal bankruptcy and to clarify specifically when an individual should consider filing for Chapter 11 bankruptcy, which is a type of bankruptcy more common among businesses than individuals.
Most Individuals Will File for Chapter 7 or Chapter 13 Bankruptcy
Generally speaking, most individuals who are planning to file for bankruptcy will file for either Chapter 7 bankruptcy or Chapter 13 bankruptcy. Individuals do not usually have the option of choosing between these types of bankruptcy since they both have specific requirements. Chapter 7 is a form of liquidation bankruptcy, and it requires a debtor to show that their income and assets are low enough for a liquidation bankruptcy to make sense. Typically, debtors prove their eligibility for Chapter 7 bankruptcy by passing what is known as the “means test.”
Differently, debtors can be eligible for Chapter 13 bankruptcy, a form of reorganization bankruptcy, when they are regular wage earners and can show that they will be able to make regular payments over the course of three to five years on a repayment plan. In addition, eligibility for Chapter 13 requires the debtor to show that they do not have more debt than is allowed by U.S. bankruptcy law.
Chapter 11 Bankruptcy Is for Individuals with Too Much Debt to Qualify for Chapter 13 Bankruptcy
When an individual debtor wants to file for a reorganization bankruptcy but has too much debt to qualify for Chapter 13 bankruptcy, that individual will usually file for Chapter 11 bankruptcy. Currently, debtors must owe less than $2,750,000 in combined secured and unsecured debt in order to be eligible for Chapter 13 bankruptcy. Otherwise, they will need to consider Chapter 11.
Chapter 11 is unlikely to be preferable for an individual over Chapter 13 if the individual qualifies for Chapter 13. In general, Chapter 11 bankruptcy is more expensive and more complicated than Chapter 13 bankruptcy for an individual, so it will make sense to move forward with a Chapter 13 case if you are eligible. Businesses, unlike individuals, cannot file for Chapter 13 bankruptcy, so they must plan for the added costs and complexities of Chapter 11 bankruptcy.
Contact Our South Florida Bankruptcy Lawyers in West Palm Beach
When you are an individual who is considering the possibility of filing for bankruptcy, it can be extremely difficult to understand what bankruptcy options are available to you and what the differences are between the types of bankruptcy. In particular, if you are considering a reorganization bankruptcy, it may not be clear to you whether you can file for Chapter 13 bankruptcy or whether you will need to file for Chapter 11 bankruptcy instead. Our firm is here to help you. Do not hesitate to contact an experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan & Eller for more information.
Sources:
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics#:~:text=chapter%2013%20protection.-,Chapter%2013%20Eligibility,U.S.C.%20%C2%A7%20109(e)
