CHAPTER 11 INDIVIDUAL BANKRUPTCY

When a large corporate bankruptcy hits the news chances are the company has filed for Chapter 11 bankruptcy protection.  The title of Chapter 11 of the Bankruptcy Code is "Reorganization" and while companies like General Motors or Washington Mutual make headlines, individuals are also eligible to file under Chapter 11.

In some cases, Chapter 11 may be the only option for an individual to file bankruptcy.  Eligibility for Chapter 7 bankruptcy is dictated by a "means test" that determines the debtor's ability to repay debts.  Through the "means test" calculation, those who are determined to be able to repay at least some portion of their debts to their creditors may consider Chapter 13 bankruptcy, but Chapter 13 debt limits may disqualify the debtor from Chapter 13.  The debt limits for Chapter 13 are currently $360,475 for unsecured debt and $1,081,400 for secured debt. If an individual's debt limits exceed these amounts, the individual may consider a Chapter 11 bankruptcy.

An individual debtor who files for Chapter 11 bankruptcy protection will follow many of the same (or similar) procedures that apply to Chapter 13 cases.  The debtor must file a petition and schedules of assets, liabilities, income and expenses; a plan to pay creditors; and attend a meeting with a bankruptcy trustee.  The debtor is required to commit all disposable income to repaying debts for five years.  Disposable income in Chapter 11 is determined differently than in a Chapter 13 case.  The bankruptcy court compares the Chapter 11 debtor's monthly income against the debtor's reasonable monthly expenses.  The result may be different than the disposable income amount determined in a Chapter 13 case.

Creditors are classified as secured creditors, unsecured creditors entitled to priority, and general unsecured creditors.  The debtor's plan is submitted to creditors for approval and the creditors are entitled to vote to accept or reject the plan.  If the creditors reject the proposed treatment by the plan, the bankruptcy judge can still approve the plan, provided that creditors receive as much during the plan as they would receive if the debtor's assets were liquidated.  Ordinarily a Chapter 11 debtor will receive a discharge after completing all plan payments.