What is Chapter 11 Bankruptcy for Consumers?

For most consumers who are considering personal bankruptcy, it will not be necessary to file for Chapter 11 bankruptcy. Most consumers file for either Chapter 7 bankruptcy or Chapter 13 bankruptcy. When a consumer earns a regular wage and is interested in a reorganization bankruptcy, it is most often in that consumer’s best interest to file for Chapter 13 bankruptcy instead of Chapter 11 bankruptcy—assuming that consumer is eligible for Chapter 13 bankruptcy. As you might suspect, Chapter 11 bankruptcy is typically a backup plan for consumers who have too much debt to qualify for Chapter 13 bankruptcy. To explain, we want to provide you with more information about reorganization bankruptcies and situations in which a consumer might file for Chapter 11 bankruptcy.

Chapter 11 and Chapter 13 are Both Types of Reorganization Bankruptcy

Both Chapter 11 and Chapter 13 bankruptcy are forms of reorganization bankruptcy. Different from a Chapter 7 bankruptcy case—in which non-exempt assets are liquidated and the consumer is eligible for a relatively quick discharge of debt—reorganization bankruptcy cases require the debtor to develop a repayment plan over a period of years. Through that repayment plan, the debtor will make regular payments to the bankruptcy trustee, who will repay creditors. At the end of the terms of the reorganization plan, which is usually anywhere from three to five years for Chapter 13 bankruptcy, the debtor can be eligible to have remaining debt discharged.

Yet it is important to know that Chapter 13 bankruptcy is only for consumers, and businesses (other than sole proprietorships) are not eligible for Chapter 13 bankruptcy. Chapter 11, accordingly, is the type of reorganization bankruptcy that businesses will file for when they need to manage debt but want to remain in business. Chapter 11 bankruptcy costs significantly more than Chapter 13 bankruptcy, and it does not often make sense for a consumer to file for Chapter 11 bankruptcy. Why, then, would a consumer file for Chapter 11 bankruptcy instead of Chapter 13 bankruptcy? Under the U.S. Bankruptcy Code, there are debt limits on Chapter 13 bankruptcy filings.

Chapter 13 Debt Limits Can Lead Some Consumers to File for Chapter 11 Bankruptcy

If you are a consumer considering Chapter 13 bankruptcy, in addition to meeting other eligibility requirements, you cannot have more than a particular amount of secured or unsecured debt. Currently, the debt limits are as follows:

  • $419,275 for unsecured debt; and
  • $1,257,850 for secured debt.

If you have either unsecured or secured debt in excess of these amounts, you will not be eligible for Chapter 13 bankruptcy. These debt limits are valid through 2021, and they will increase in April 2022. The fees for Chapter 11 are higher than the fees for Chapter 13 bankruptcy, including a filing fee of $1,167 plus a $550 administrative fee. Chapter 11 filers are also responsible for regular administrative fees during years of the bankruptcy case.

Contact Our Oak Park Bankruptcy Lawyers

If you have too much debt to qualify for Chapter 13 bankruptcy, you should speak with an Oak Park consumer bankruptcy attorney about your options for a Chapter 11 consumer bankruptcy. Contact the Emerson Law Firm to learn more about how we can help with your case.



See Related Blog Posts:

Bankruptcy Filings at Lowest in 15 Years

Can I Discharge COVID-19 Medical Debt in Bankruptcy?

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