When Should a Consumer File for Chapter 11 Bankruptcy?

Any debtor who is considering the possibility of filing for consumer bankruptcy has likely looked into the different options that are available to an individual debtor. In most cases, an individual debtor in Illinois will file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, depending upon the debtor’s particular circumstances. Debtors are not typically eligible for both types of bankruptcy, and as such, a debtor cannot choose between Chapter 7 and Chapter 13 bankruptcy. Rather, Chapter 7 bankruptcy is designed for individual debtors who can pass the “means test,” showing that they have insufficient income or resources to repay debts in any meaningful capacity. Chapter 13 bankruptcy, differently, is designed for wage earners who can prove that they have a regular income that will allow them to meet the terms of a three-to-five year bankruptcy plan.

If Chapter 7 and Chapter 13 bankruptcies are the most common types of bankruptcies for individual debtors, why is there information about individuals filing for Chapter 11 bankruptcy? Our Oak Park bankruptcy attorneys can explain why a consumer ultimately might file for Chapter 11 bankruptcy and what it will mean for that individual.

Individuals File for Chapter 11 Bankruptcy When They are Ineligible for Chapter 13 Bankruptcy

Individuals should not choose to file for Chapter 11 bankruptcy when they are eligible for Chapter 13 bankruptcy because the costs associated with a Chapter 11 bankruptcy are higher. To be clear, an individual should only consider Chapter 11 bankruptcy instead of Chapter 13 bankruptcy when that individual is ineligible for Chapter 13 bankruptcy.

Why would an individual be ineligible for Chapter 13 bankruptcy but eligible for Chapter 11 bankruptcy? In short, Chapter 13 bankruptcy has debt limits, and an individual with a significant amount of debt may not be permitted to file for Chapter 13 bankruptcy and may need to rely on Chapter 11 bankruptcy instead. The current debt limits for Chapter 13 bankruptcy are $419,275 in unsecured debt and $1,257,850 in secured debt. If you have more debt than either of those limits, you will not be eligible for Chapter 13 bankruptcy but can consider Chapter 11 bankruptcy instead.

Eligibility Factors are Similar for Chapter 13 and Chapter 11 Bankruptcy

Aside from debt limits, you should know that other eligibility factors for Chapter 13 and Chapter 11 bankruptcy are similar. Accordingly, if you would otherwise qualify for Chapter 13 bankruptcy but have too much unsecured or secured debt, you may be eligible for Chapter 11 bankruptcy.

While Chapter 11 bankruptcy is often filed by businesses, it can be filed by individuals, as well. In both Chapter 13 and Chapter 11 bankruptcy, the debtor creates a repayment plan designed to last from three to five years and makes payments according to the plan on a monthly basis. At the end of the repayment period, remaining debts can be discharged.

See Advice From an Oak Park Bankruptcy Attorney

If you have questions about Chapter 13 versus Chapter 11 bankruptcy, an experienced Oak Park bankruptcy lawyer at our firm is here to help. Contact the Emerson Law Firm to learn more about how we can assist you with your personal bankruptcy case.


See Related Blog Posts:

I Want to File for Consumer Bankruptcy: Now What?

Things to Know ABout Consumer Bankruptcy in the New Year

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