Personal Chapter 11

In 1991 the Supreme Court ruled that individuals can file bankruptcy under Chapter 11, which up until that point was reserved for corporate reorganization. An individual who files personal Chapter 11 typically has more income and assets than those filing under Chapter 7 or Chapter 13. Usually an individual debtor who does not qualify for Chapter 7, files bankruptcy under Chapter 13 whereby the payment structure for outstanding debts is comfortably reorganized over a period of three or five years.

Personal Chapter 11 is for those individuals whose amount of debt exceeds the debt limitations of Chapter 13. Households with more than $336,900 in unsecured debt and $1,010,650 in secured debt may qualify for personal Chapter 11 once a disclosure statement and repayment plan is presented to the courts. The repayment plan must be approved by the courts and creditors alike. Repayment period is three or five years, with secured debts taking priority over unsecured debts. The filing fee for personal Chapter 11 is $1,046.

There have been several rulings for personal Chapter 11 bankruptcy to bring it more in line with Chapter 13. The individual must present a certificate as proof of having attended a credit counseling session sponsored by the local bankruptcy court. The debtor must also file copies of all payments received from an employer for the sixty days prior to filing a bankruptcy petition.

The repayment plan must be funded through the debtors’ non-exempt income. With regard to secured property, such as a home, personal Chapter 11 disallows a cram down by the courts. This means the principal and interest cannot be reduced on a mortgage loan. Creditors of unsecured debts have the option of objecting to the confirmation of the repayment plan. The plan cannot be confirmed by the courts until all parties have come to a mutual agreement.

Unlike Chapter 13 provisions, personal Chapter 11 does not require monthly payments to be made to a court trustee, as long as the agreed value of the reorganization plan is met by the end of the repayment period.

In corporate Chapter 11 bankruptcies, the corporation may receive discharge of unsecured debts upon confirmation of the reorganization plan. Not so in a personal Chapter 11 bankruptcy; discharges will not be deemed until all payments have been made under the repayment plan, which is typically five years.