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Friday, July 19, 2019

When is Chapter 11 Bankruptcy Available to Individuals?

Deciding which chapter of bankruptcy to file is almost as important as the decision to file bankruptcy itself. Many individuals are familiar with bankruptcy being identified by chapters, but few understand the differences between them. Chapter 11 bankruptcy is available to both businesses and individuals. Under a Chapter 11 bankruptcy, an individual or business may reorganize their debts to make payments manageable given their income. Chapter 11 bankruptcy is generally an option when the business or individual has a continuing source of income, but that income is insufficient to continue to pay outstanding debt obligations.

Although it’s relatively uncommon for individuals to file for Chapter 11 bankruptcy due to its extraordinarily high costs, filing for Chapter 11 bankruptcy may be appropriate when the individual has too great an income for Chapter 7 bankruptcy or has debts that exceed the Chapter 13 bankruptcy allowance. Because Chapter 11 bankruptcy has extremely high fees, it is generally seen as a last resort when an individual doesn’t qualify for Chapter 7 or 13 bankruptcy filings.

Under federal law, anyone individual may choose to file Chapter 11 bankruptcy. As noted, however, the fees associated with Chapter 11 bankruptcy often result in only corporations and high network individuals filing. Chapter 11 offers several advantages for individuals when compared to Chapters 7 and 13 bankruptcy filings.

First, if you owe more than $1,081,400 of secured debt or $360,475 of unsecured debt, you are not eligible for a Chapter 13 bankruptcy filing. Thus, for those with debts in excess of the Chapter 13 bankruptcy maximum, a Chapter 11 bankruptcy filing may provide relief to individuals. Similarly, having too great an income can cause you to fail the Chapter 7 bankruptcy means test which. Thus, Chapter 11 bankruptcy provides debt restructuring relief for those who have too much debt for Chapter 13 bankruptcy or too much income for Chapter 7 bankruptcy.

Second, if you owe more on a car than it’s worth and you financed it within 910 days of the Chapter 11 bankruptcy petition date, you are eligible to “cram down” the car loan. A cram down wipes out the debt in excess of equity. For example, if you buy a vehicle worth $25,000 and petition for Chapter 11 bankruptcy two years after buying it (within the cram down window), and you can show that you owe $20,000 on the vehicle while it’s only worth $15,000, the $5,000 difference may be wiped out and the debt restructured to $15,000.

Third, if you have non-dischargeable debts, such as owing child support and payroll taxes, penalties and interest associated with these unpaid debts will be stopped upon a petition for Chapter 11 bankruptcy. Thus, a Chapter 11 bankruptcy can provide you the time necessary to organize your finances to pay back these non-dischargeable debts.

When choosing which bankruptcy chapter to file, there are a multitude of factors that need to be considered.


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Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.



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