Chapter 11


Chapter 11 bankruptcy offers business owners, and sometimes individuals, the opportunity to restructure their debt and receive some relief from creditors while the business owner(s) get their finances back under control. This form of bankruptcy protection is available to any size business and most types of corporations, including sole proprietorships.

An Overview of Chapter 11:

As the petitioner, you will have to present a plan to reorganize debts and expenses. You will have to submit this payment plan and stick with it as a condition of being in Chapter 11. Individuals who file for Chapter 11 must also complete approved credit counseling within 180 days before filing. This is a requirement common to Chapter 7 and Chapter 13 bankruptcy. Anyone who had a bankruptcy case dismissed within the previous 180 days due to their failure to appear, is not eligible to file Chapter 11.

Chapter 11 is more complicated, and expensive, than either Chapter 7 or Chapter 13. The petitioner must also submit an accounting of their income and expenses. A statement of contract and leases, and a statement of financial affairs also have to be submitted at filing, along with a case filing fee of $1,167 and a miscellaneous administrative fee of $550. As with Chapter 7 and 13, the fee cannot be waived, but it may be possible to pay installments rather than paying the full amount up front.

After Filing:

If your petition for Chapter 11 bankruptcy is approved, collection efforts will stop and your debt payments will be reduced. This pause in collection activities gives the petitioner time to prepare a plan to restructure their debts and return their business to profitability. With a few exceptions, the debtor will not be able to take on new debt. That can be a real problem for some businesses, but has to be balanced against the financial advantages of getting relief from an unmanageable debt load.

Once the petition is filed the business owner, under the supervision of the bankruptcy court creates and submits a debt repayment plan that shows how the business will reduce operating costs and pay off debts owed when filing for Chapter 7.

Debt Reorganization:

If your petition is accepted you will have to submit monthly reports to the New York bankruptcy court. The point of Chapter 11 is to implement a debt restructuring plan that allows the business to leave bankruptcy in a position to be profitable again. Elements of the reorganization plan include renegotiating leases and contracts. The debtor will also try to have debts discharged or renegotiate lower payments. Creditors have an incentive to work with debtor because they risk losing even more money if the debtor has to file for Chapter 7.

Chapter 11 bankruptcy can be a complicated, time consuming process for a business owner. You should always consult an attorney before trying to file for Chapter 11.

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