Chapter 11 can be filed by business entities as well as individuals. Business cases can be filed by partnerships, corporations, LLC's, and any other legally identifiable entity. However, trusts are not eligible to file under Chapter 11. Individuals are also eligible to file, whether they have their own sole proprietorship businesses or are simply consumer wage-earners.
When Should an Individual Consider Chapter 11?
There are far too many reasons to list for individuals to file Chapter 11. However, they fall into three basic categories.
1. Individuals with sole proprietorships frequently need to reorganize the business. Chapter 11 allows individuals to do this while continuing to operate their businesses free from the interference of a court appointed trustee (in most cases).
2. Individuals with unusually large asset bases or sole proprietorship businesses may need to liquidate under Chapter 11. Unlike Chapter 7 liquidation, wherea court-appointed trustee controls the sale of assets, Chapter 11 allows the debtor to control the order and time frame for the liquidation of their assets in order to satisfy creditors. This can result in greater liquidation prices and the retention of assets necessary for the debtor's continued viability.
3. Some individuals are ineligible for Chapters 7 or 13 due to high income and large debt loads, respectively. For them, cCapter 11 is the only option.
What Sort of Things Can Be Done in a Chapter 11?
Chapter 11 is by far the most versatile of all bankruptcy chapters. Chapter 11 does not have a mandatory trustee to supervise the bankruptcy case, unlike the other chapters of bankruptcy. Instead, the debtor is placed "in possession" of its/his/her/their own estate. This gives the debtor a level of control not found anywhere else. In terms of the possibilities, they include the following:
1. Obtaining short-term relief from debt service payments.
2. Restructuring secured debts to lower interest rates and change repayment terms.
3. Rejecting unfavorable contracts and retaining beneficial ones.
4. Shutting down a business and transferring its assets/operations to another business entity
5. Changing the nature of the business by shedding unprofitable elements.
6. Recovering assets taken by creditors shortly before filing.
7. Paying back taxes over five years.
8. Stripping secured debts to the value of the collateral.
9. Discharging large amounts of debt.
10. Much more!
What Is the Timeline for a Chapter 11 Case?
A Chapter 11 case begins with the filing of a petition. In most cases, there will be a slew of motions filed by the debtor's attorney during the first week. They may include employment applications, "cash collateral" motions, motions to allow the debtor to make certain payments to creditors (known as "adequate protection" payments and "critical vendor" payments), motions to limit notices, and others. Like other chapters, a meeting of creditors will take place about a month after the petition is filed. Usually there will be a status conference held by the court shortly thereafter. After a period of time spent operating, reorganizing, and/or liquidating, the debtor should file a plan of reorganization or liquidation. Once a plan and disclosure statement are filed, they will be offered to creditors and the court for approval. The entire process can take place within a few months or over a period of 20 years! Many chapter 11 cases last about a year, but there is no "normal" length
How Much Does It Cost?
Remember the story about restaurant menu with no prices? If you have to ask, you can't afford it. For starters, the filing fee alone is $1,039. Attorneys fees are hard to estimate--there are no "flat rate" chapter 11 cases. For the most basic consumer chapter 11, most of my colleagues (including me) estimate not less than $10,000 in attorneys fees. Fees for small to medium size businesses often go between $50,000 and $100,000. Large cases can get into the millions, and the mega cases (Enron, Lehman, etc.) go into the hundreds of millions. That doesn't include accountants, etc. That being said, attorneys and other professionals are a necessity in chapter 11. In most states, businesses cannot even file chapter 11 without a lawyer. An individual who tries to do so will likely find their case dismissed very quickly and $1,000 poorer to boot. In fact, only a small portion of bankruptcy attorneys have experience in chapter 11, and fewer are capable of filing them. Choose wisely!
I have filed several Chapter 11 cases and participated in many, many more. I have never seen any case where chapter 11 was the only solution or a foregone conclusion. Filing Chapter 11 should happen only after serious thought and consultation with a qualified and experienced Chapter 11 attorney. This guide is meant only as a VERY general bit of background information. The only decision you should ever make based on the information contained in this guide is to consult qualified counsel. If you need Chapter 11 representation anywhere in Kansas, give me call. If in Missouri or California, I would be happy to offer some excellent recommendations. Elsewhere, I suggest asking a local attorney you trust--they are sure to know someone. Best of luck!