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Chapter 11 Payment Estimator (3-Year Plan)
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Chapter 11 bankruptcy is primarily used by businesses to reorganize their debts. Here’s an overview of how to qualify for Chapter 11 bankruptcy:
1. Type of Debtor
Businesses: Chapter 11 is most commonly used by corporations, partnerships, and limited liability companies (LLCs) to restructure their debts while continuing operations.
2. No Debt Limits
Chapter 11 does not have debt limits. This makes it a viable option for businesses with very high levels of debt.
3. Regular Income Source
Aregular source of income or revenue is essential to fund the reorganization plan. The court needs to see a feasible plan for repayment that demonstrates the ability to make the proposed payments.
4. Ability to Propose a Feasible Reorganization Plan
The debtor must propose a reorganization plan that explains how they intend to restructure their debts, which could include reducing the amount owed, extending the repayment period, or selling assets to pay creditors. The plan must be feasible, meaning the debtor must demonstrate the ability to execute it successfully.
5. Filing the Petition
The debtor must file a petition for Chapter 11 bankruptcy with the appropriate bankruptcy court. This petition will include detailed financial information, such as assets, liabilities, income, expenses, and a statement of financial affairs.
6. Disclosure Statement and Reorganization Plan
The debtor must provide a disclosure statement that contains detailed information about the business or individual’s financial situation and the proposed reorganization plan. Creditors and the court will review this information to assess the viability of the plan.
7. Approval of the Reorganization Plan
Creditors vote on the reorganization plan. For the plan to be approved, it typically requires a majority vote from creditors whose claims are impaired by the plan (meaning they will not be paid in full or have their terms altered). The bankruptcy court must also confirm the plan, ensuring it meets all legal requirements and is fair and equitable to creditors.
8. Debtor in Possession (DIP)
In Chapter 11 cases, the debtor often continues to operate the business as a “debtor in possession” (DIP). The debtor maintains control over day-to-day operations but must operate under the oversight of the bankruptcy court and follow specific requirements, such as filing monthly operating reports and maintaining insurance.
9. Consultation with a Bankruptcy Attorney
Given the complexity of Chapter 11 bankruptcy, it’s crucial to consult with a qualified bankruptcy attorney. An attorney can help determine if Chapter 11 is the right option, guide you through the filing process, and assist in drafting the reorganization plan and disclosure statement.
Key Considerations
Complexity and Cost: Chapter 11 is often more complex and expensive than other bankruptcy types (such as Chapter 7 or Chapter 13), due to its detailed requirements and the need for court approval of the reorganization plan.
Court Involvement: The bankruptcy court plays a significant role in overseeing the process, and there is frequent interaction with creditors and the court throughout the case.
By meeting these criteria and following these steps, businesses and individuals can qualify for Chapter 11 bankruptcy, allowing them to reorganize their debts and work towards financial stability.
Before deciding to file chapter 11, you may want to consider your other options with a free consultation.