If you’re at the point where debts and other financial obligations are overwhelming, a Chapter 11 bankruptcy may be a good option to help resolve those issues. However, it’s important to understand what that filing means and who can file.
Arkansas Businesses Filing for Chapter 11
A business that files for Chapter 11 bankruptcy protection intends to continue operating. Still, it needs to reorganize to do so–by changing its business approach, downsizing and eliminating overhead, or both. To effectively accomplish this reorganization, Chapter 11 bankruptcy provides a framework for working with creditors and a temporary respite from their demands, providing the reorganizing business with the ability to put together a reorganization plan and time to implement it.
A Chapter 11 reorganization plan implements debt separation into different classifications–for example:
- Delivery van note securing the delivery van
- Storefront mortgage securing the storefront real property
- Note securing inventory
- Unsecured debts (credit cards, etc.)
The plan will then state how the court will treat each class–this “treatment” in the plan is, in effect, a modification of the original contract with the creditor. Upon confirmation of the plan, the terms in the plan become the new contract, superseding the terms in existence before filing the bankruptcy case.
Depending on your business’s particular circumstances, whether to modify certain classes of debts would best be determined by consulting with an experienced bankruptcy attorney.
Chapter 11 Considerations for Individuals
Although Chapter 11 cases are rarer for individuals, they can be used for real estate investment reorganization or reorganizing unsecured debts that are too high to qualify for Chapter 13 relief.
Most individuals use Chapter 13 bankruptcy to reorganize and repay debt. However, Congress limits the amount of debt that qualifies for Chapter 13. The current debt limit for a Chapter 13 debtor is $360,475 for unsecured debts. If a debtor’s total unsecured debt is more than this, they could file for Chapter 11 bankruptcy instead.
Keep in mind that there’s no set duration for a Chapter 11 case. These cases can last for long periods or wrap up quickly, depending on the business’s or individual’s particular situation. Also, if the court or creditor(s) determines that a debtor mismanaged assets, they could appoint a bankruptcy trustee, and the debtor could lose control of the business.
Above all, it’s important to consider if the complete reorganization of debts and liabilities is worth the time, expense, and effort of a Chapter 11 filing. If you have an intact core business or are an individual with outstanding needs, it’s worth exploring your options. It’s important to talk with an experienced bankruptcy attorney, and Natural State Law can be an effective source for those struggling in the Little Rock area. Call us at (501) 261-0226 to discuss how we can advise you through a potential Chapter 11 bankruptcy.