Can individuals file for Chapter 11?

As this blog has noted many times, the two most common forms of bankruptcy for individuals are Chapter 7 and Chapter 13. Sometimes news articles mention a celebrity filing for Chapter 11 bankruptcy. This is actually very rare. The vast majority of Chapter 11 bankruptcies are filed by businesses, not individuals.

To understand why, first we should briefly discuss the basics of the three types of bankruptcy and what parties can be eligible for them.

Chapter 7 bankruptcy is the fastest and most powerful form of debt relief under the U.S. Bankruptcy code, and is available to both businesses and consumers. Chapter 7 is sometimes known as liquidation bankruptcy, because it requires filers to sell some of their assets in order to pay off creditors. Many types of property are exempted from the liquidation requirement, especially for consumers, and so individuals who file for Chapter 7 are often able to live quite comfortably after the process is over. Businesses, on the other hand, typically use Chapter 7 when they intend to wind down their operations.

Chapter 13 is available only to individuals. People who file for Chapter 13 are protected from their creditors while they work out a repayment plan that is designed to get them out of debt over three to five years. If all goes well, at the end of the repayment period, the court will waive some or all of the person's remaining debt.

Chapter 11 is available primarily to businesses. Like Chapter 13 does for individuals, Chapter 11 gives the business protection from creditors while it continues operating and works out a plan to restructure its debt and return to profitability. It is available both to large corporations and smaller businesses.

While very rare, there are cases where individuals can file for Chapter 11. These are cases where the individual has a high income, but whose debts have grown out of his or her control. In such cases, a bankruptcy court might decide that Chapter 11 allows the person to restructure their debts and return to financial solvency under court supervision.

To learn more about your options for returning to financial health, contact an experienced debt relief attorney.

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