A consumer in Raleigh, NC, can file several kinds of bankruptcy for debt relief when debts get out of control. Many debtors and businesses file Chapter7, a liquidation bankruptcy, or Chapter 13, which reorganizes debts. However, businesses that don’t qualify for Chapter 7 or Chapter 13 may file Chapter 11.
Overview of Chapter 11
Chapter 11 bankruptcy is primarily for individuals and business owners who exceed the income caps of Chapter 7 and Chapter 13. Similar to Chapter 13, Chapter 11 gives the debtor a chance to repay debts through reorganization. Priority debts are commonly paid first, such as domestic support and back taxes.
The debtor submits a payment plan for court approval. It includes details on how they intend to pay debts. These commonly get discharged in three to five years through completing the payments and other requirements. The plan may include modifying interests and payment dates, reducing expenses and ideas to increase profits.
Pros and Cons of Chapter 11
A disadvantage of Chapter 11 is that it commonly costs more to file than other types of bankruptcy. It also involves more paperwork. Debtors must prove their business is profitable and keep accurate records. The process commonly takes longer, which may complicate things for a business having trouble staying afloat. Creditors could also object to the repayment plan, meaning the debtor must devise a new plan.
One benefit of Chapter 11 is that the debtor can keep their business open without selling assets as in Chapter 7. The court must approve some decisions such as breaking leases, expanding operations and buying or selling business assets. Bankruptcy enables the Automatic Stay, prohibiting creditors from further collection attempts on the debt, but creditors can ask the court to lift it.
While Chapter 11 bankruptcy gives debtors relief, it is a complex process that requires careful attention to details. An attorney can help the debtor figure out which type of bankruptcy they need to file and assist with the process.