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Chapter 11 for Individuals

Many assume that Chapter 11 bankruptcy relief is exclusively for large corporations, but this is not accurate. Individuals who don't meet the requirements for Chapter 13 or need added protections can use Chapter 11 to reorganize their debt. With this option, they can catch up on missed mortgage payments, restructure investment property debt, and often pay only a fraction of their credit card and medical debts. However, Chapter 11 differs significantly from Chapter 13, and the following will outline some of the key distinctions.

    • Who is eligible? To qualify for Chapter 13 bankruptcy, an individual must have less than $465,275 f in unsecured debt and less than $$1,395,875 in secured debts at the time of filing. Additionally, they must have a regular income that is stable enough to make payments under a plan. Chapter 11 bankruptcy has no limit on the amount of debt a debtor can have and does not require a minimum amount of debt to file. There is also no income requirement, and individuals without income may still file if they have assets that can be sold to fund their plan.
    • Administrative Requirements and Fees. If you file for Chapter 13, you can still use your existing bank accounts and only have to file monthly operating reports if you have an ongoing business. You'll need to pay trustee fees directly to the Chapter 13 trustee, which can vary depending on where you live and how much you owe to creditors. These fees can be up to 10% of your payments to creditors, and the filing fee for a Chapter 13 is $313. For Chapter 11 cases, you'll need to close all pre-petition bank accounts and open new Debtor-in-Possession (DIP) accounts. All funds that come into your possession must flow through these accounts. Even if you're an individual not in business, you'll need to file monthly operating reports detailing your income and expenses. Fees are payable quarterly to the U.S. trustee and are based on your monthly expenditures. The typical individual quarterly fee is $650, but it can be higher or lower depending on the details of your case. The filing fee for a Chapter 11 is $1,738.00.
    • Codebtor Stay. Chapter 13 imposes an automatic stay on consumer debt codebtors, while Chapter 11 does not, although the force of the automatic stay is the same in both chapters.
    • Trustee Oversight. When it comes to Chapter 13 cases, a trustee is responsible for overseeing them. This trustee reviews filings, computes payment requirements, and represents the interests of the general unsecured creditors. They also conduct the Meeting of Creditors and ensure compliance with the Code, and make recommendations to the court. Chapter 13 debtors are not held to the standards of a fiduciary. On the other hand, in a Chapter 11 case, there typically is no trustee, except in cases of fraud or mismanagement. The U.S. Trustee reviews certain aspects of the case, but their role is completely different from that of a Chapter 13 trustee. Unlike a Chapter 13 trustee, the U.S. Trustee primarily reviews, and the debtor typically will not receive the same sort of guidance that many Chapter 13 trustees provide.  A U.S. Trustee paralegal or accountant will usually conduct the Initial Debtor Interview, at which the basic administrative requirements of a Chapter 11 case are reviewed with the debtor. A U.S. Trustee trial attorney typically conducts the Meeting of Creditors. It's important to note that Chapter 11 debtors are held to the standards of a fiduciary, meaning that they are responsible for operating the bankruptcy estate for the benefit of the creditors of the estate..
    • Means Test and Budgets. When filing for Chapter 13 bankruptcy, completing the Means Test form is necessary to determine whether the debtor's income is above or below the state median. This calculation helps determine the length of the Chapter 13 plan and the payment amount. In cases where the debtor's income is above the state median, the means test is the determining factor for how much creditors receive from the plan. The calculation involves a detailed analysis of the debtor's expenses and IRS standards, which is then analyzed by the Chapter 13 trustee. Trustees are very strict when it comes to budgeting for non-essential expenses such as contingency funds, private school or college tuition, student loans, and luxury car payments. In contrast, Chapter 11 bankruptcy uses a simpler two-page means test form that only requires determining the current monthly income. Although creditors can challenge expenses as unreasonable, they are allowed more frequently in Chapter 11 cases, especially in cases involving tuition expenses and student loan repayment.
    • Plans and Plan Payments. After filing the petition, a Chapter 13 plan must be submitted within 14 days. Payments usually start 30 days after the plan is filed, and only the debtor can file it. Most jurisdictions have a form Chapter 13 plan, which is approved by the court, usually after the Chapter 13 trustee's recommendation. Creditors cannot vote on the plan's approval, but they can object to it. A Chapter 13 plan cannot exceed 60 months, and mortgage arrearages, restructured mortgages, taxes, and domestic support obligations must be paid in full within 5 years. For Chapter 11 cases, there is no mandatory deadline for filing a plan except in small business cases, and payments don't begin until the court confirms or approves the plan, which can take 6 months to a year or more. While creditors can file a plan for the debtor, it's rare due to cost in individual cases, and most jurisdictions don't have form Chapter 11 plans. The debtor must also file a disclosure statement that the court approves, containing information about the plan to allow creditors to evaluate it properly. Creditors vote on approval of the plan and can object, but provisions exist to approve the plan over their objections. There is no limit to the length of a Chapter 11 plan, meaning mortgage arrearages or a restructured mortgage on investment property can be spread out over 20-30 years. Taxes can be spread out but must be paid in full within five years from the case filing date, and domestic support obligations must be paid in full on the Effective Date of the Plan, shortly after it's confirmed.

Contact Attorney John D. Ioakimdis, serving the Chicagoland area and surrounding counties in Illinois. 

If you are considering filing for Chapter 11, it's important to understand that this area of law is highly complex. To ensure you navigate the process successfully, it's crucial that you seek the assistance of an experienced attorney who is familiar with the unique provisions of individual Chapter 11 cases. Bankruptcy attorney John D. Ioakimidis has a skilled team in Illinois that can help you review your financial situation and offer guidance tailored to your specific circumstances. Attorney John Ioakimidis understands that the stakes are high, and that's why uses his expertise and resources to advance his client's interests in a timely and strategic manner. To schedule a free consultation and begin the process of obtaining financial relief, please contact us at 1-312-593-1765.

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