How Chapter 11 Works

Chapter 11 bankruptcy is a reorganization procedure used by businesses, including sole proprietors, partnerships, corporations and individuals who for certain circumstances need to file what is called an individual Chapter 11 because their financial situation is outside the parameters for them to file a chapter 13. As in Chapter 13, The chapter 11 debtor files a petition which includes a list of assets and liabilities, and a detailed statement of financial affairs. The debtor will typically act as his own trustee, called a "debtor in possession", and will remain in possession of all estate property. The court can appoint a trustee for cause and will in the case where mismanagement is at issue.

A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements. Unless the court orders otherwise, the debtor also must file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. If the debtor is an individual (or husband and wife), there are additional document filing requirements. Such debtors must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. A husband and wife may file a joint petition or individual petitions.

The filing fees amount to $1,039 which includes the $1,000 case filing fee and a $39 miscellaneous administrative fee. The fees must be paid to the clerk of the court upon filing or may, with the court's permission, be paid by individual debtors in installments. Debtors should be aware that failure to pay these fees may result in dismissal of the case. A debtor may petition the court to pay the fees in a maximum of four installments.

Because Chapter 11 is very involved and has many facets to consider, we suggest that if you are in one of the categories which would require you to seek relief under Chapter 11, that you make an appointment for a consultation with us or another bankruptcy attorney to discuss your financial matters.