The vast majority of Chapter 11 bankruptcy filings are by businesses: LLCs, closely held corporations, and large public company filings. We read about them almost daily in the news. This is how we have come to mostly think about Chapter 11 in the US: a large company like Toys ‘R Us with millions in liabilities, and extensive fees and costs for professionals working the case through the court process.
Less common are the mostly under-the-radar Chapter 11 filings by individuals. The process is mostly the same, yet also very different in feel and in the issues that are most often contested. While individual Chapter 11 bankruptcies are rare, we are seeing an uptick in individuals with sizeable assets or liabilities needing to explore Chapter 11 as an option in working through cash flow setbacks, or when creditors are aggressively pursuing remedies and refusing to work out forbearances and extensions.
Why would an individual need a Chapter 11? Primarily, because their liabilities exceed the maximum amount to qualify for a Chapter 13 “repayment plan” case. Often, the personal liabilities are corporate guaranties or otherwise co-obligations along with corporate indebtedness. To be eligible for a Chapter 13 case, the maximum “non-contingent and liquidated” unsecured debt cannot exceed $394,725, and the maximum secured debt cannot exceed $1,184,200. [11 U.S.C. §109(e)]. Many small business owners and other high wealth individuals are nowhere near these limits.
There should be no qualms, embarrassment, or hesitation in confidentially exploring with a qualified bankruptcy professional what a Chapter 11 case would look like in a personal credit situation. Chapter 11 is a rehabilitative remedy provided by law that has existed for centuries in our country. The goals are to allow time to repay creditors, to maximize recovery for all concerned, to prevent and discourage “races to the courthouse,” and to permit fresh starts in life. Creditors will always look out for their own best interests, and you can never control their decisions.
Take action to educate yourself about Chapter 11. Without a high level understanding of all your options, you are not making your best and most informed decisions. You and your family deserve more.
About DelCotto Law Group
DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy, complex litigation, and estate planning. For more information about filing bankruptcy or DelCotto Law Group, please call (859) 231-5800 or email [email protected].