Chapter 11 Bankruptcy Basics Part II

19 Sep Chapter 11 Bankruptcy Basics Part II

bankruptcy filing do overIn Part 1 of Chapter 11 Bankruptcy Basics, I answered some of the basic questions about what a Chapter 11 is. This series continues with a discussion of some of the things that a Chapter 11 can do.

Why would I want to file Chapter 11? Generally speaking, my Chapter 11 clients fall into three categories. First, are businesses, large and small, that need time to repay and restructure their debt, shed unprofitable contracts, and reorganize their financial affairs. Second, are businesses that want to liquidate their assets and close, but retain more control over the process than is offered by a Chapter 7. Third, are individuals who would file for Chapter 13 but for their owing more money than is allowed under the debt caps.

Once you file, the automatic stay stops all actions against you (or your business) to collect debt or which affect any of your assets. This means that garnishments, foreclosures, repossessions, lawsuits, phone calls, letters and the like all halt.

Can I catch up my mortgage/car/tax/domestic support payments under Chapter 11? Yes. In fact, many individual Chapter 11 cases are filed primarily to do just this.

Do I have to pay everyone in full? It depends. Priority debt, such as certain taxes, domestic support obligations, and unpaid employee wages, must be paid in full over the term of the Chapter 11 Plan. If you want to keep secured property, such as your home or car, any arrearages must be paid in full over the term of the Chapter 11 Plan. In most Chapter 11 cases, just as in most Chapter 13 cases, the general unsecured creditors receive much less than the full amount they are owed.

How long is the Chapter 11 Plan? Unlike in Chapter 13 cases, where there is a five year limit, other than for tax obligations, where there is the same five year limit, there is no limit to the length of time a Chapter 11 Plan can go for. I have seen 20 year Chapter 11 Plans approved by the Court, although they are not typical. Most Chapter 11 Plans last 3-5 years.

Can I lower my mortgage payments under Chapter 11? Maybe. You still can’t “cram down,” or lower your mortgage principal to the value of your home under any chapter of the Bankruptcy Code (at least not yet). But if the property isn’t your home (or “primary residence,” in legalese), cram downs are allowed. You can also “strip off” a wholly unsecured second (or third) mortgage or lien. A strip off turns the secured lien into a general unsecured debt, which is typically paid pennies on the dollar, and upon the successful conclusion of your case, the lien must be released.

Can I claim exemptions under Chapter 11? Absolutely, if you’re an individual. Whatever exemptions are available in your state are available under Chapter 11. Businesses aren’t allowed any exemptions.

More tomorrow…

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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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