Chapter 11 bankruptcy is usually reserved for businesses interesting in reorganizing their finances, but it is increasingly being considered for individuals. Although individuals have always been able to use Chapter 11, most individuals use Chapter 13 to "reorganize" their finances. For individuals, "reorganization" means to pay otherwise non-dischargeable debts, such as support, or taxes, or to save a home from foreclosure, or retain otherwise non-exempt property from a bankruptcy trustee. Chapter 13 has historically provided a framework to accomplish these tasks.
In instances where an individual has more debt than allowed in Chapter 13, or needs more time than provided in Chapter 13 to pay for non-dischargeable debt or retain property, Chapter 11 is increasing seen as a viable option. Some commentators have espressed concern about using Chapter 11 for individuals since Chapter 11 cases cannot be automatically dismissed (as Chapter 13 cases can be), and there can be additional tax implications for debtors in Chapter 11. Individual Chapter 11 cases have been a frequent topic recently at bankruptcy conferences around the country and has caused Bankrutpcy Judges and legal scholars to analyze the importance of this option for individuals in the future.
Changes to Chapter 11 under BAPCPA (the revisions to the Bankruptcy Code effective October 2005),make it more user friendly for individuals. While there remain drawbacks to using Chapter 11 for most individuals, it can be a sensible choice where there is significant debt, significant income, and the need for more creative problem solving than is available under the confines of a Chapter 13 bankruptcy. If you believe your financial problems might be best solved by Chapter 11, call our office for a consultation.