Here Are Ways A Chapter 11 Bankruptcy Is More Appropriate Than Chapter 7
There are moments when calls from debt collectors or threats of legal action can bring a person or a company to the point of filing bankruptcy for relief. As a general rule, Chapter 11 is a strategic filing that allows a company or a person to reorganize their debts and to repay creditors in order of high to low priority. Chapter 11 is for individuals and companies that have more than $1,184,200.00 [$1.18 million] in secured debt and/ or $394,000.00 in unsecured debt.
Chapter 11 is typically used for purposes of re-organizing debt; through a payment plan that is intended to pay back creditors for a percentage of the debt owed.
Chapter 11 is NOT used for debt liquidation - in other words, most people that choose to file Chapter 11 are planning to stay in business and work out a payment plan for debts owed to creditors. Chapter 7 is used for liquidation of debts - typically filed when a business is closing.
Many attorneys recommend looking for alternatives before filing Chapter 7 bankruptcy; it should be a last resort.
Family Law Attorney Damien Nolan recommends filing Chapter 7 bankruptcy only after you “Take a long, hard look at your debts and your income and decide whether filing now or at a later date is more beneficial to your situation. If you have automatic bill pay or your paycheck is on direct deposit, you will need to open new banking accounts and move all your money to the new accounts. Change your direct deposit information with your employer so that your pay is deposited into the new accounts. Make sure that only your most important bills are on automatic bill pay from the new accounts. There may be exemptions you can utilize; find out what those are and maximize them. Put your credit cards away where they are not convenient and stop using them. Research local credit counseling services and begin attending meetings.”
According to Damien Nolan, Bankruptcy may be a good option for you if:
- You have many dependents
- The amount you owe is large
- You have few assets and/or cash
- You have little to no savings
- You are an older person
“There isn’t a checklist for deciding to file bankruptcy; your personal situation should dictate whether or not you file. An attorney with experience and qualifications with bankruptcy law can help you decide. Bankruptcy is not impossible, and a bankruptcy attorney can help you through the legal maze to get you the relief from your overwhelming debt, ending the worry and stress that debt can cause.”
4 reasons why Chapter 11 is better than Chapter 7
According to attorney Michael Jaurigue, Chapter 11 is the preferred strategy for businesses needing to quickly restructure debt. There are many factors for a business to seek the protection of a bankruptcy court, including the certainty of protection from the moment a case is filed. Some of the common reasons to file a Chapter 11 include:
Automatic protection from creditors and debt collection during the re-organization process. Immediately upon filing Chapter 11, all debt collection must stop; any lawsuits must be suspended, and the business is protected from any further claims for the duration of the bankruptcy.
Court supervised repayment plan for creditors. The court must ultimately determine what the filing business must pay to creditors through the repayment plan. The amount ordered is based on the filings of the business and the claims of the creditors, with priority given to certain creditors over others. The court may determine that some high priority creditors will be paid in full, while low priority creditors will not be repaid for their debts.
Rehabilitation of creditworthiness allows the filing company to improve their credit by going through the process of Chapter 11. Once a company completes a Chapter 11 plan it is much less of a credit risk than prior to filing.
Specific rules and guidelines for creditor claims limit the amount that a debtor will ultimately pay during the course of the Chapter 11. Creditors are subject to a specific claims process with strict timelines to file claims with the court.
For creditors, Chapter 11 is considered a complex matter and lawyers that represent creditors need to understand how to file claims and how to navigate the court system to protect their client’s rights.
A top Portland Business Lawyer suggests “The firm has the privilege of representing a number of regional banks. Through many years of representing the interests of financial institutions, the firm’s lawyers have developed an extensive expertise in collections issues of every sort. The firm’s lawyers also advise private businesses concerning their credit and collection policies. They are called upon to revise loan agreements, credit applications, guaranty forms, and standard contracts.”
According to Attorney Rodney Okano: Bankruptcy And Good Credit Are Compatible
“As consumers become more educated and concerned about their credit scores, people have come to believe that bankruptcy will ruin their credit rating. In fact, filing for bankruptcy can actually improve your credit score over time. While it will hurt you initially and remain on your record for seven to ten years, it will begin to help your credit rating as a result of ending your legal obligation to repay the debts in question.”
In conclusion, Chapter 11 makes sense for companies and individuals that need time to get their finances back on track, and need protection from the court to devise a repayment plan for their debts. For a list of Chapter 11 [or chapter 7] attorneys in your area, please visit www.consumercr.org or your local bar association for a referral.
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