Most people think of Chapter 11 as an option for businesses that need to restructure their affairs. A growing number of individuals, however, have filed petitions for relief under Chapter 11 of the Bankruptcy Code. In the West Palm Beach Division of the Southern District of Florida, individual Chapter 11 cases now comprise approximately 33 percent of all Chapter 11 cases that are filed.
A Chapter 11 bankruptcy case allows debtors to reorganize their affairs while enjoying the breathing room afforded by court protection from actions by creditors. The debtor, at least for a certain period of time, has the exclusive right to file a detailed disclosure statement and propose a plan that provides how claims of creditors that fall within statutorily required classes of such claims are treated.
Why are More Individuals Filing Under Chapter 11?
There are a variety of factors contributing to an increasing number of individuals using Chapter 11 instead of the more conventional options. These include more people operating as sole proprietors, failed real estate investments, and the economic downturn impacting wealthier individuals. These individuals may be unable to qualify as debtors under Chapter 13 because of statutorily-imposed limitations on unsecured and secured debt.
In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was signed into law. Some of the changes enacted may have also caused more people to choose Chapter 11 as a bankruptcy option, since BAPCPA imposed limits upon those who can utilize Chapter 7 bases upon gross family income (there are exceptions).
Which Individuals Is Chapter 11 Right For?
Several types of individuals may be well-suited for Chapter 11. For example, individuals with substantial assets to protect but who face liquidity problems in the short-term may be candidates for Chapter 11. This would allow them to protect their assets while addressing their current financial needs.
Someone who is a sole proprietor, or anyone who has personally guaranteed the obligations of a business - or of another - may also want to consider a Chapter 11 case One of the amendments provided by BAPCPA addresses the ability of individual Chapter 11 debtors to retain certain assets while paying certain debts over time.
Another instance that may cause an individual to file for Chapter 11 is if they own several real estate investments that have decreased in value. Florida's distressed housing market makes this scenario relatively commonplace. A 2010 report from the United States Bankruptcy Court for the Middle District of Florida stated that "75 percent of the individual Chapter 11 filings in the Division were associated with investment properties."
Consult With a Bankruptcy Attorney
If you are struggling financially due to debts from your business, underperforming real estate investments or other financial hardships, contact an experienced bankruptcy attorney. Like any case, all options, and the pros and cons of a particular case, should be thought out before a decision is made. A bankruptcy lawyer can discuss the options available to you and help you make an informed decision based on your financial situation.
