For many people, Chapter 11 brings to mind large companies in financial trouble with more debts than assets.
However, during these Covid-19 pandemic times, not just large companies but a good chunk of retailers have waved the white flag.
When corporations are on the brink of failure, they will often file for Chapter 11 bankruptcy protection.
Chapter 11 allows them reorganization of the business, and its debts and assets.
Some businesses succeed in reorganizing, while others liquidate their assets and close shop permanently.
Enron and Lehman Brothers are notable examples of companies that became bankrupt and never saw the light of the day.
It is true therefore that Chapter 11 can be used either to reorganize or liquidate a debtor.
However, more often than not, it is associated with reorganization.
As one Chapter 11 bankruptcy attorney MD rightly pointed out, “Chapter 11 allows a business owner to halt collection actions, enhance cash flow, safeguard employees, discard burdensome leases, and pay the debt. In short, business owners are able to retain control of the company”.
But can one file for Chapter 11 in an individual capacity?
The answer is yes.
This chapter is also available to individuals who cannot seek protection under Chapter 7 or Chapter 13.
“Chapter 13 is available only to those whose debts are less than a specified value”, says a Chapter 11 attorney in Maryland. “Moreover, those who make too much money cannot file for Chapter 7”.
Some of the compelling benefits of Chapter 11 are:
There are no debt limitations. This chapter is available to you if you cannot afford a repayment plan regardless of the amount of debt you have.
The repayment plan lasts up to 10 years. On the other hand, Chapter 13 repayment plan lasts only for 5 years. A longer repayment plan is helpful in cases on repaying large debts such as for car loan, mortgages, and priority loans such as income taxes.
You remain in control of the Chapter 11 case. In Chapter 7 and Chapter 13, the court appoints a trustee to oversee the case. In a Chapter 11 case, you retain control over the process but with court supervision.
Here is an interesting finding.
This year’s recession induced by Covid-19 did not increase bankruptcy filings. In fact, filings dropped 27 percent through August 2020.
An observation that a lot of people may not have filed for bankruptcy may seem reassuring.
But there could be some strong reasons for it.
Attorney fees could be one of them. A filing may have a price tag that deters consumers and small businesses when they need debt relief the most.
Difficulty accessing the court system - As the pandemic took full shape, the court moved proceedings online.
Bankruptcy attorneys however are presenting a comforting tone to people in financial distress.
“Do not be deterred”, says a Chapter 11 bankruptcy attorney in MD. “Just consider bankruptcy as another piece of social safety net”.