Understanding Chapter 11 Bankruptcy

 Posted on November 22, 2024 in Chapter 11 Bankruptcy

Small business owners or individuals undergoing financial difficulties may be wondering whether Chapter 11 bankruptcy is a good option to get their finances in order. Chapter 11 is most commonly used by corporations and partnerships seeking to reorganize their debt. However, individuals can also file for Chapter 11 bankruptcy. An experienced Texas bankruptcy attorney can advise individuals and small businesses on the appropriateness of seeking Chapter 11 bankruptcy protection.

What Is Chapter 11 Bankruptcy?

Called the "reorganization bankruptcy," a Chapter 11 bankruptcy allows individuals and business owners to restructure their debt and make a plan to pay back creditors. Debtors under Chapter 11 file a "reorganization plan" outlining how they intend to pay back creditors. During the course of the bankruptcy proceedings, debtors remain in possession of their assets. Chapter 11 is a complex process that involves large amounts of debt and can sometimes take a long time to resolve.

What Are the Benefits of Chapter 11 Bankruptcy?

• Retaining control: For business owners, Chapter 11 bankruptcy allows corporate debtors to continue operating your business.

• Keeping the debtor’s home: Individual Chapter 11 debtors can keep their home, although they will have to pay back payments on the debt over a period of five years.

• Keeping other assets: Along the same lines, businesses who file Chapter 11 may keep their assets while they restructure, so they can continue to operate.

• Stopping collections: Creditors must stop attempting to collect on debts once a debtor files for Chapter 11 protection.

• Saving the business: A small business facing significant debt may be able to survive and move forward using Chapter 11 by making the business profitable while restructuring debt.

Can I File for Chapter 11 As an Individual?

Although Chapter 11 is primarily used by businesses to reorganize, it is also possible for individuals to file for Chapter 11 bankruptcy protection. Chapter 11 may be appropriate for an individual who has amassed a great deal of debt. Individuals who exceed Chapter 13’s total debt limit may also have no choice but to file for Chapter 11.

What Is the Chapter 11 Process?

• Debtor files petition with bankruptcy court

• The automatic stay goes into effect, stopping creditor collections

• Debtor in Possession (DIP) continues to operate as a business

• The reorganization plan is developed

• Debtor prepares disclosure statement explaining a repayment plan to creditors

• Creditors vote on the plan

• A bankruptcy court confirmation hearing is held to confirm or reject the plan

• The plan is implemented and the debtor begins making payments

• Most debts are discharged after payment 

Contact an Experienced Harris County, TX Bankruptcy Attorney

Whether you are a small business owner or an individual, hard times can befall the best of us. When they do, you may find yourself contemplating whether filing for bankruptcy is the right decision. At The Fealy Law Firm, PC we help our clients navigate complex bankruptcy proceedings. Chapter 11 bankruptcy is an especially complex legal process, and having the right representation is essential. Our Houston TX bankruptcy attorney can advise you on seeking Chapter 11 bankruptcy protection. Call us at 713-526-5220 for a complimentary consultation.