Most people either file for Chapter 7 or Chapter 13 bankruptcy in the U.S. They file for Chapter 7 commonly because they don’t have enough money left to pay their debts after a calculation of their income and expenses has been done. Therefore, they have no choice but to sell their assets and use the proceeds as a payment to the creditors.
Whilst in Chapter 13, a debtor must have a regular income to pay for debts on a monthly basis compliance to the repayment plan, which would take three to four years to receive a discharge.
Moreover, another way to get rid of your debts is through Chapter 11 bankruptcy.
What is Chapter 11 bankruptcy?
Chapter 11 bankruptcy is a “reorganization” type of bankruptcy mainly because it reorganizes your business and individual wealth. This type of bankruptcy is originally drafted for businesses, corporations, and partnerships who are facing financial troubles.
In Chapter 11, debtors have the chance to reorganize their finances while they keep their assets and continue to run their business, yet only under the supervision of the bankruptcy court and assuring creditors of their benefit.
Generally, you still have the possession over your assets and properties.
Filing Chapter 11 bankruptcy
To start your Chapter 11 bankruptcy journey, you begin by filing a petition before the court just like in any other chapters of the bankruptcy code.
In filing Chapter 11, there are two types of petition namely; voluntary petition filed by a debtor and involuntary petition filed by the creditors under certain requirements.
Your Chapter 11 bankruptcy case officially begins immediately after the filing of which the court will issue an automatic stay stopping creditors in their track from collecting unpaid debts and filing a lawsuit against you.
Your Chapter 11 bankruptcy reorganization plan
One most important thing you should do in Chapter 11 is to make a reorganization plan. The plan should contain repayment terms and it is the tool of the debtors to convince their creditors to just settle down. So, make sure to make your reorganization plan reasonable and beneficial to you and your creditors.
Also, include in your plan the priority creditors and separate them considering their class and types of claims. Clearly, state their claims and the benefits they can gain from it. This would secure that your debts and missed financial responsibilities will not affect your business operations.
The Chapter 11 plan only takes effect after the approval of the creditor’s committee who represents all your unsecured creditors.
You have up to four months to develop a reorganization plan. But if you think four months is not enough, you can raise a request to the court to extend your time and they can grant you up to 18 months under certain circumstances.
Chapter 11 discharge
As long as your reorganization plan does not violate any law and there are no more issues with it, the court usually gives their approval immediately. You can already get rid of your existing debts before the confirmation following what is stated in the plan.
Your current financial disposition influences whether you file bankruptcy Chapter 7 11 13. So better hire a bankruptcy lawyer to help you meet your goals whatever bankruptcy chapter you’ll file.
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What is Chapter 11 Bankruptcy?
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