Though Chapter 11 bankruptcies are usually associated with businesses, they can also be a good answer for high net-worth individuals. In both cases, this chapter of the bankruptcy law provides the ability to hold on to assets instead of selling them off: instead of liquidation, the entity seeks approval for a reorganization process that both stops debt collection activities and provides creditors with a way of getting some or all the monies that they are owed.

If you are interested in pursuing a Chapter 11 bankruptcy, it is important for you to understand all of the applicable terminology and components that are involved. Once you have filed you will become what is known as a debtor-in-possession: the ‘in possession’ part is what’s most important, as it means that you are able to hold on to your business or your assets.

In filing for Chapter 11 bankruptcy, the single most important document you will prepare is your plan for reorganization. A well-structured plan that proposes a method of repaying your debts is far more likely to be acceptable to those to whom you owe money as well as to the court if you stick to the terms and follow the repayment schedule that you’ve proposed and that they eventually approve.

Your plan of reorganization must break down each class of creditors that you plan to pay back, as well as how you plan to pay them. The creditors are generally broken down into secured creditors that have a debt backed by collateral; priority unsecured creditors whose debt is not backed by collateral; unsecured creditors and equity security holders who have shareholder interest or some other type of equity security. The lower level creditors are considered “impaired” because the payment plans generally outline them receiving less than the full value of their original debt, and they are the ones that vote on whether to approve the plan or not. The plan must be approved by at least one class of impaired creditors before the court will give approval. Non-impaired creditors are assumed to be a ‘yes’ because they will eventually receive the money that they are owed.

The full discharge of debt does not take place for an individual until all payments have been made, though for businesses the dischargeable debt is erased as soon as the court and your creditors sign off.

If either the court or your creditors are not in agreement with your plan for reorganization, they can submit a competing plan once the 120-day period of exclusivity is over.

For more information about filing for bankruptcy, contact us today to set up an appointment to discuss your situation and what will work best for you.

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