How Does Chapter 11 Work?

Most people who meet with us at the Pew Law Center are convinced that a Chapter 11 reorganization bankruptcy is for corporations and big businesses. That Chapter 11 is an exclusive club that gives big companies time to sell off some of their assets and readjust their debts. But as bankruptcy lawyers like Lawrence ‘D’ Pew know well, many individuals can benefit from the protection and debt relief options available under Chapter 11.

What is Chapter 11 Bankruptcy?

Chapter 11 bankruptcy is a chapter of Title 11 of the United States Bankruptcy Code, which can be utilized by both individuals, and business.

Individuals Increasingly File under Chapter 11

The Pew Law Center  has observed an important trend in bankruptcy filings. There has been a steady increase in the number of individuals who chose to filed for bankruptcy under Chapter 11, when they might also qualify for a Chapter 13 individual debt reorganization. Our lawyers want married couples to know that husbands and wives have the ability to file jointly or separately under Chapter 11, too. Just as they may under other chapters of the U.S. Bankruptcy Code.

When the individual debtor files for bankruptcy protection and debt relief under Chapter 11, in addition to the FORM1 voluntary petition, he or she must include written disclosures according to approved form.

Schedule of Disclosures:

•  Certificate of credit counseling.

•  Employment payroll advices, or pay stubs, for wages received within 60 days of filing.

•  Debt repayment plan (if any was done during credit counseling).

•  Schedule of assets and liabilities.

•  Schedule of executory contracts and unexpired leases.

•  Statement of financial affairs.

•  Statement of monthly income (net).

•  Statement of anticipated change in income (if any).

•  Report of an interest in any qualified educational accounts (tuition).

•  Plan of reorganization.

•  Disclosure statement concerning business assets and liabilities (unless it is a small business case and the plan makes sufficient disclosures).

Wearing a New Hat: The Debtor in Possession (DIP)

What we want you to understand is that, as soon as the Chapter 11 voluntary petition is filed with the Clerk of the Bankruptcy Court, the individual debtor automatically becomes a “debtor in possession.”  11 U.S.C. § 1101. In a few rare instances, a case trustee may be appointed to administer the bankruptcy estate. Generally, though, the debtor (or debtors if both husband and wife filed jointly) remains in control of the assets during the bankruptcy so that a trustee is not needed to manage the estate’s business.

AZ individual debtors generally remain in possession, and thus in complete control of the bankruptcy estate’s assets, until one of the following events occurs:

1. The debtor’s reorganization plan is confirmed by the court.

2. The debtor’s case is dismissed.

3. The debtor’s case is converted to a Chapter 7 liquidation bankruptcy.

4. A case trustee is appointed.

Have Questions? We’re Here To Help

Are you interested in learning more about the unique benefits that individual petitioners have under Chapter 11? There is no shame or blame at the Pew Law Center, so contact our lawyers and find out exactly how Chapter 11 could be made to work for you!