Why not Chapter 11?

[GWBcasualty]

I will almost certainly file pro-se.

I have been studying for months and, since I own a small business, debating between Chapter 7 and 13... I recently decided to research Chapter 11 and it has some very attractive features.
Mainly the ability to strip liens, no limit on the amount of debt and no means test.

Most attractive is:
"A plan often calls for the debtor to remain in business, and to repay creditors from future earnings, from borrowings, or from sale of assets. In Chapter 11, priority claims, including recent tax claims, are required to be paid in full, plus interest. Secured claims are required to be paid in full, also with interest. Unsecured non-priority claims are required to be paid a dividend at least equal to that which they would receive if it were a Chapter 7 case. Within these limits, there are an infinite variety of Chapter 11 plans, each based on the debtor�s own financial situation."

In other words, credit cards could get zero?

[DeadManCrawling]

Ch 11 is okay, in the right circumstance. Mainly, the issues with it are expense and agreement. Your expenses for a CH 11 can run into many tens of thousands of dollars. I am not extremely well-versed in 11, but the cost is a serious concern to many people, and businesses, who are in financial trouble.

If you have a business that is profitable, once debts are reconfigured, this might be a good option. However, I do not think CH 11 business filing will help with personal guarantees of business debt or any personal debt at all. You would still need to file for yourself if you have these additional debts or guarantees.

If your business IS profitable, without these debts, it may well be worth considering.

I also think there may need to be agreement among major creditors of the business. Essentially, they may have some say in your plan being accepted or rejected. I may be wrong on this, but my recollection is such. If that IS the case, this can present further challenges.

In any case, a CH 11 could be right, but they are infrequent and costly.

Best,

-dmc

[catleg]

I have heard of personal chapter 11 cases where unsecured creditors got pennies on the dollar.

The key difference between ch11 and 13 is that in 11, you are required to pay all your disposable income into the plan, which may then favor secured creditors, and cram down unsecureds, as the absolute priority rule has been found not to apply in personal chapter 11's. (you being the equity tier).

Chapter 13 requires paying all your disposable income to unsecureds.

I am currently working on chapter 13 and if the chapter 13 trustee acts very strictly in my case I think converting to chapter 11 is in my future.

The irony, of course, is that the fees in a chapter 11 can eat a lot of money, however, most of it comes at the expense of the unsecured creditors.

[GWBcasualty]

I have heard of personal chapter 11 cases where unsecured creditors got pennies on the dollar.

The key difference between ch11 and 13 is that in 11, you are required to pay all your disposable income into the plan, which may then favor secured creditors, and cram down unsecureds, as the absolute priority rule has been found not to apply in personal chapter 11's. (you being the equity tier).

Chapter 13 requires paying all your disposable income to unsecureds.

I am currently working on chapter 13 and if the chapter 13 trustee acts very strictly in my case I think converting to chapter 11 is in my future.

The irony, of course, is that the fees in a chapter 11 can eat a lot of money, however, most of it comes at the expense of the unsecured creditors.

My thinking is (and it may be flawed, of course)... that in a Ch 11 I could keep paying my 1st in full (which I intend to do anyway), pay my vendors in full over 3 years, strip the 2nd and bundle it with CC debt at 10 cents on the dollar.

If it doesn't get confirmed and needs to be converted to a Ch 7, nothing changes for my first mortgage. If the trustee lets me run my business nothing would change for my vendors (although my obligation is discharged I would still need to pay them IF I want to stay in business). The CC would get zilch. I could still deal with the second via a loan mod.

Still need to do a lot of research, but there are some attractive features.

[catleg]

Not to mention that plan payments don't begin until the plan is approved (11) vs starting from the filing date (13).

I do know that post-BAPCPA has given enormous power to trade creditors, such as in the Circuit City case, to shut down and liquidate the business instead of allowing it to continue. So that's something you should look into for your business.

[HHM]

As was pointed out, the first issue with chapter 11's is cost. The "average" small business chapter 11 can easily run $40,000+ in attorneys fees. Plus, unlike other chapters of BK, the fees continue in the chapter 11, you are billed monthly. Also, there is a minimum fee you pay to the U.S. Trustee each month in a chapter 11.

Even though unsecured creditors must at least get what they would receive in a chapter 7, they do get a vote. The problem in chapter 11's is actually getting them to vote. Unlike in many areas of law where failure to object or appear counts as consent, it does not in a chapter 11, the unsecured must actually vote, if they don't case a vote, the plan cannot be approved. (this is the big pitfall to many chapter 11's)

Although you can do all those things in a chapter 11 that you mentioned, the real issue is whether the business, or individual, really has the resources to do it. Sure, you can cram down liens, but you MUST pay the value of those liens INSIDE the chapter 11. Thus, if you cram a condo worth $50,000 but you owe $140,000; you must have a way to PAY the $50,000 INSIDE the chapter 11 plan.

[GWBcasualty]

As was pointed out, the first issue with chapter 11's is cost. The "average" small business chapter 11 can easily run $40,000+ in attorneys fees.

I guess I shouldn't even think of a pro-se Ch 11? That way the fees would still be higher but not AS high as you posted.

Terrible idea??
It certainly seems to make sense on paper, but so would make sense to send a settlement offer to all unsecured creditors and get it over with... too easy, right?

I am 99% sure that I can get my business (sole proprietorship) through a 7... so I guess, why bother? Well, I would love to strip that 2nd!

[HHM]

I guess I shouldn't even think of a pro-se Ch 11

Take gun, shoot self in foot.

Chapter 11's are a specialized area of bankruptcy law, most attorneys that do consumer and small business bankruptcies can't do chapter 11's. Thus, a pro se chapter 11 would probably not make it 15 days into the chapter 11 without it being dismissed.

[GWBcasualty]

Take gun, shoot self in foot.

Chapter 11's are a specialized area of bankruptcy law, most attorneys that do consumer and small business bankruptcies can't do chapter 11's. Thus, a pro se chapter 11 would probably not make it 15 days into the chapter 11 without it being dismissed.

Loud and clear