Top 15 Lies About Bankruptcy. Lie #10: Chapter 11 is “Business Only”

16 Aug Top 15 Lies About Bankruptcy. Lie #10: Chapter 11 is “Business Only”

Lie #10: Only Big Businesses Can File for Chapter 11, Not People.


While corporations may be “people” in the eyes of Mitt Romney, there nevertheless are very different rules that may apply to their treatment. Most people believe, for example, that Chapter 11 is the chapter of the Bankruptcy Code reserved only for big businesses. They’re wrong.

This one is pretty simple. The Bankruptcy Code actually has a section 109 that is titled, “Who may be a debtor.” Subparagraph (d) talks about Chapter 11. It says, “Only…a person that may be a debtor under chapter 7 of this title…may be a debtor under chapter 11 of this title.”

So, individuals can file for relief under Chapter 11. (Which is good, since my law partner, Dan Press, and I have written a book, “Chapter 11 for Individual Debtors”.)

There is no reference in any of this to corporations or partnerships, however. How are they eligible? In this case, Mr. Romney is right. Section 101(41) says, “The term ‘person’ includes individual, partnership, and corporation…”

The mere fact that Chapter 11 is available for individuals doesn’t mean that it is an easy procedure. Chapter 11 is the most difficult and complex chapter of the Bankruptcy Code. Very few attorneys who handle the more common consumer Chapter 7 and Chapter 13 cases take Chapter 11 cases. The filing fees are about triple the fees for Chapter 13 ($1,046vs.$281). The legal fees are significantly higher as well. Make sure that you have an attorney very experienced in handling individual Chapter 11’s in your corner for this one.

But Chapter 11 also can offer much that Chapter 13 cannot. On a recent podcast, we discuss some of these differences.One of the major advantages is the ability to restructure mortgages (other than the primary mortgage on your home), removing arrearages, lowering the interest rate, and reamortizing the loan over 20 to 30 years, something that is invaluable to clients with multiple properties.

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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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