4 Instances Where an Individual Can File for Chapter 11 Bankruptcy

Chapter 11 bankruptcy was originally set up to help businesses that are in financial trouble, but there are some cases where it can be used for individuals as well. It is important to note that in almost all instances, it is going to be better financially to choose either a Chapter 7 or a Chapter 13 bankruptcy if you qualify. When that is not possible, however, a Chapter 11 might be an effective alternative.

Chapter 11 bankruptcy is somewhat similar to Chapter 13 in that it allows debtors and creditors to renegotiate the terms of the debt. Unlike Chapter 13 bankruptcy, however, there are no debt limits that apply, so even those with very high debt levels can qualify. The following are some situations where Chapter 11 bankruptcy can be used by individuals.

Individual Has High Income Levels

Chapter 7 bankruptcy is a great option for people who want to eliminate most of their debts entirely, but it is only available for those who have low to modest incomes. High income individuals are disqualified from seeking chapter 7, but since Chapter 11 has no income limits, it may be the right solution.

Individual Has High Amounts of Debt

Chapter 13 bankruptcy is only available to those who have $383,175 or less in unsecured debt, and $1,149,525 or less in secured debt. While this is certainly a lot of money, when you start factoring in cars, homes, rental properties, and other debts, it is easy to see how someone could exceed these levels. Anyone who exceeds these limits will be unable to qualify for a Chapter 13 bankruptcy, but the Chapter 11 option will still be on the table.

Debtor is “Upside Down” in a Mortgage

A specific situation where people often turn to Chapter 11 is when they are “upside down” in their mortgage. For example, if someone purchased a home for $500,000 and they still owe $450,000, but the value of the home is only $250,000, they may be over the Chapter 13 limits (when including other debts). Filing Chapter 11 can make it possible to force the mortgage company to reduce the principal owed to $250,000, as well as modifying other debts to make the payments manageable.

Those Who Need Extended Payment Periods

Chapter 13 bankruptcy allows people to create a repayment plan that will help them pay off their debts within a reasonable amount of time, typically 3-5 years at the most. For those with higher levels of debt, this payment period may not be possible. Chapter 11 bankruptcy allows payments to be spread out over much longer periods of time (20-30 years, for example), which may be necessary to ensure the payments are reasonable and the creditors are getting as much money as possible.

Is Chapter 11 Right for You?

While there are certainly times when Chapter 11 bankruptcy is a great solution for an individual, it is not very common at all. Only an estimated 1 out of 1000 personal bankruptcies use this option. If you think that Chapter 11 might be the right solution for you, or you just want to go over all of your options, make sure you contact The Law Office of Ray Garcia, P.A. to schedule a consultation.