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Individual Ch. 11 may be possible in the right circumstance

The theory behind Chapter 11 is certainly attractive. Create a space of time, under legal auspices, to work out a reorganization plan with creditors on how to pay off excessive debt. Typically, this vehicle is used by Texas businesses, large and small.

Individuals can use it, as well, but it's a bit like the story of Goldilocks. Conditions have to be just right for it to be a viable course of action. Those with experience in this area of law would likely agree that either Chapter 7 or Chapter 13 offer individuals the means to achieve optimal outcomes, but a thorough exploration of options might warrant a look at Chapter 11.

Chapter 11 circumstances

The conditions that can make Chapter 11 something to consider include the following:

  • If an individual makes too much income to qualify for Chapter 7 liquidation
  • If the person's debt burden is too great to meet Chapter 13 limits

One important thing to note about Chapter 11 is that either the debtor or creditors can file the petition. Regardless of who initiates the process, the effect remains the same. An automatic stay on all debt collection begins. The stay period is used by the debtor to come up with a plan for reorganizing finances and negotiating new terms with creditors on repayments. These are often better than creditors might realize under Chapter 7.

Over the course of the bankruptcy period, the debtor's life carries on uninterrupted. Monthly reports allow the court to keep a finger on the pulse of the case. The ultimate objective under this type of filing is to restore the individual to a profitable state.

Chapter 11 for individuals is rare. A typical filer might be a professional in a well-established private practice or perhaps a celebrity with high earning potential. Still, Chapter 11 is viewed as more debtor friendly. That makes getting a proper legal assessment important.

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