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Can an individual file for Chapter 11 bankruptcy?

The answer is "yes," but a consumer rarely is in a position when this is needed or desirable. Chapter 11 is a type of bankruptcy that is suited to businesses just as Chapter 7 and Chapter 13 are designed to benefit consumers. An individual is not prohibited from filing for Chapter 11 bankruptcy -- other types of bankruptcy are often more suitable -- but it's worth learning more to compare this bankruptcy with other types.

It may be hard for a New York consumer to believe anyone or any business would file bankruptcy or is capable of filing bankruptcy with a goal of eventually making a profit. That is exactly how debtors approach Chapter 11. Like Chapter 13 personal bankruptcy, Chapter 11 involves a restructuring plan.

A Chapter 11 petition may be filed voluntarily by the debtor or involuntary by creditors. The idea is not to liquidate assets, but to gain time to pay off or partially satisfy debts while an automatic stay prevents creditor problems. The debtor also actively works to improve his or her financial status by designing a profitability plan, cutting costs, boosting income and discharging or renegotiating debt -- a process that sometimes takes years.

Only a small fraction of consumers files for Chapter 11 bankruptcy – about 1 in every 1,000 consumer filings in 2009. Those who do file have unique situations, where earnings capability is high but a debt load disqualifies the individual from filing for Chapter 7 or Chapter 13.

Chapter 11 petitions must be filed according to certain timelines, just as other bankruptcies are filed. A consumer is required to undergo credit counseling before filing for a petition.

Consumers should understand fully all bankruptcy options open to them and discuss the best course of action to take with an attorney. Review the qualifying factors for each type of bankruptcy and identify your post-bankruptcy goal.

Source: United States Courts, "Chapter 11 - Bankruptcy Basics," accessed June 26, 2015

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