At Corash & Hollender, P.C., in New York, we help individuals and businesses facing overwhelming debt to file and proceed through bankruptcy. We therefore know that most people believe that Chapter 7 and Chapter 13 are their only bankruptcy options. Such, however, is not the case. 

Chapter 11 serves as a viable bankruptcy option for individuals who have more debt than allowed by Chapter 13 and businesses that have less than $2.19 million in debt and employ fewer than 500 people. 

Reorganization plan 

FindLaw explains that Chapter 11 is somewhat similar to Chapter 13 in that it represents a reorganization process rather than a discharge process. Once you file Chapter 11, you have 180 days in which to devise a reorganization plan for yourself or your business. No creditor can harass you during this six-month period for payment of your debts. Rather, you negotiate with your creditors to restructure your debts, thereby often receiving more favorable terms and/or outright debt reduction. Keep in mind that your creditors must vote to approve your reorganization plan before the bankruptcy judge will sign off on it. 

Creditor classifications 

The Chapter 11 bankruptcy court will divide your creditors into the following three categories: 

1. High priority creditors such as the IRS, the New York Department of Revenue, etc. 

2. Secured creditors, meaning those to whom you gave collateral 

3. Unsecured creditors, meaning those who hold no collateral 

During your negotiation process you will individually negotiate with each of your creditors who falls within the first two categories. But you will negotiate with your unsecured creditors as a group. 

Once your creditors approve your reorganization plan, most Chapter 11 bankruptcies take six months to two years to complete. This gives you or your business the “breathing time” needed to get caught up on your bills, stop foreclosures and debt collection lawsuits, and recover your financial footing. 

For additional information, please visit this page of our website.