Chapter 11 and Other Reorganizations
Although Chapter 7 and Chapter 13 bankruptcies are the most common types of bankruptcy filings, there are other types of reorganization bankruptcies that can be used by both individuals and companies in specific circumstances. Chapter 11 bankruptcy is a bankruptcy typically used by companies facing insurmountable financial difficulties, and is used to restructure the bankrupt business's debts into what eventually becomes a manageable repayment plan. Another type of lesser-known bankruptcy type is Chapter 12, which is typically used by individuals who are family farmers or fishermen. In this section you can find resources outlining the basics of these other types of bankruptcies, who is eligible for each type, and more. Please select from the links below to get started.
Chapter 11 Overview
Chapter 11 bankruptcy is intended to permit the reorganization of businesses with heavy debt burdens. The debtor files a proposed plan for profitability post-bankruptcy, which may include reducing costs and seeking new sources of income while temporarily postponing payment to creditors. Chapter 11 bankruptcy avoids total liquidation of the business, provides more time to develop and file a plan, and gives the opportunity to reorganize. On the other hand, Chapter 11 is also more time-consuming and costly than other forms of bankruptcy.
Either the debtor or its creditors may file a petition for Chapter 11 bankruptcy. If the creditors file the bankruptcy is referred to as an involuntary petition. Filing a petition puts an automatic stay on all collection actions unless the court indicates otherwise. The debtor then begins to develop their reorganization plan. If a reorganization plan is developed that the court agrees was structured in good faith and in compliance with the law the court will confirm the plan and debts that existed before the confirmation date but not directly addressed in the plan are discharged and the debtor is obligated to pay the remaining creditors in accordance with the reorganization plan.
Chapter 11 bankruptcy is most frequently used by large corporations, though small businesses, and in rare cases even individual consumers are eligible. Follow the links to learn more about these situations and the common risks and benefits for filers of this sort.
Chapter 12 Basics
Another form of reorganization called Chapter 12 is designed specifically for "family farmers" or "family fishermen" who have regular annual income. Under Chapter 12 debtors can propose a repayment plan to make installment payments to creditors over a three to five year time. Plans of this sort must propose to pay 100% of child support, alimony, and other domestic support claims. Repayment plans longer than five years in length are not permitted.
Only farmers or fishermen can use Chapter 12 to manage their debt. Requirements include that the individual or husband and wife be engaged in farming or commercial fishing, the total debts cannot exceed $3,237,000 for farmers or $1,500,000 for commercial fishermen, there are also limits on the total amount of fixed debts relating to the farming or fishing, and more than 50% of their gross income must have come from farming or fishing in the previous year. A corporation or partnership may be eligible to file for Chapter 12 bankruptcy if it is closely held by a family and does not have publicly traded stock.