There isn’t just one type of bankruptcy that fits for all people and all businesses. Many people have heard of Chapter 7, Chapter 11, and Chapter 13 bankruptcies. There are others as well.
The type of bankruptcy filing that best suits one person and his or her circumstances will not always be the same one that best suits another person. Businesses also differ in bankruptcy needs. It is important to determine not only which type of bankruptcy is best for you, but also which type of bankruptcies the law permits you to file given your circumstances.
Chapter 11 Basics
A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a “reorganization” bankruptcy. Chapter 11 bankruptcies are typically filed when a business just needs to reorganize in order to get back on track.
When a business files a bankruptcy petition, the individuals behind the business are not required also to personally file bankruptcy as well and generally will not. Of course, a person may put everything they have into a business, and when the business does poorly or goes bankrupt, the person feels personal loss due to what he or she has put into that business, but the person personally loses nothing more than he or she put in.
Be aware that this is not the case with sole proprietorships. A sole proprietorship is just an extension of its owner, and, therefore, in bankruptcy, the owner’s personal assets are at risk as well.
Legal Limitations on Filing Chapter 11
The law places limits on who can file bankruptcy at what time, in addition to limits on what debt and what assets are affected by bankruptcy proceedings.
An individual cannot file under chapter 11 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d)-(e).
In addition, no individual may be a debtor under chapter 11 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111.
There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.