What Is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is the least common chapter of bankruptcy for individuals. Most people know of Chapter 11 bankruptcy due to large corporations filing Chapter 11 when they are distressed. Chapter 11 bankruptcy is the least common for individuals because they are usually only used when the debtor has too much debt or income to qualify under a Chapter 7 or a Chapter 13. Secondly, Chapter 11 bankruptcies usually carry a pretty hefty price tag with attorneys due to how complicated these bankruptcies can be.
Chapter 11 bankruptcies are usually wrapped up somewhere between 6 months to two years. Sometimes it can be less and sometimes it can be more. Like other bankruptcies, you start a Chapter 11 by filing a petition which details your income, assets and debt. An automatic stay is put in place by the court which instructs your creditors to stop all collection efforts. Your creditors are then notified of a date and time where they are invited to the “meeting of the creditors” where they can ask you questions or contest the bankruptcy in front of the US Trustee.
Unlike other bankruptcies, in Chapter 11 the filing party is known as a debtor-in-possession which means you remain in possession of your assets while reorganizing your debt. You remain in possession until your bankruptcy plan is confirmed, the case is dismissed, you convert to another chapter of bankruptcy, or a trustee is appointed. In other bankruptcies, the trustee is in control of the bankruptcy estate from the beginning. Although a trustee can be appointed, Chapter 11 is unique in that a trustee is rarely ever appointed.
The debtor takes over the role that a state bankruptcy trustee would usually occupy as the debtor is required to establish a reorganization plan (with the assistance of professionals if you so choose) and file the proper disclosure statement and submit this to a panel of your creditors so that they may examine your plan and decide if it is fair or not. The court must approve the disclosure statement and then the creditors vote to approve or deny the plan. The court basically looks to make sure that the plan is made in good faith and is fair.
Once your plan is confirmed, you’ll receive a discharge from all debt that existed prior to filing the bankruptcy. You will then move forward with making all of the payments confirmed under the plan and once all of those payments have been made, the court will issue a final decree which will officially close your case.