3 Situations Where an Individual May be Able to File Chapter 11 Bankruptcy

Generally, individuals will file either Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 bankruptcy will liquidate all your non-exempt assets and use them to pay your creditors. In a Chapter 13 bankruptcy, you set up a payment plan that involves all of your creditors for up to a five-year period. Chapter 7 bankruptcy is much faster as there is no required repayment period involved; your discharge can occur in as little as just a few months in some circumstances.

There are situations, however, where an individual may need to file a Chapter 11 bankruptcy. This type of filing is usually reserved for businesses who want to restructure or reorganize. However, some people can use Chapter 11 when they meet certain criteria. In fact, the number of individual Chapter 11 filings has been increasing in recent years.

Individual debtors can use Chapter 11 bankruptcy to reorganize if their debts are too high for a Chapter 13 filing. These large debts can be incurred in a variety of ways; the primary consideration is the total debt number, not how you obtained the debts. Nonetheless, certain circumstances are more likely than others to trigger Chapter 11 bankruptcy.

Large Personal Debts

Those who have high incomes often also have high debt levels. While these debt levels may be sustainable on their regular income, if that income stream stops suddenly, those debts can be too much to handle. This may occur if a professional is suddenly removed as an upper-level executive or where an illness or sickness strikes suddenly, robbing you of your ability to continue working.

Business-Related Debts for Self-Employed Individuals

Some self-employed individuals operate their business as a sole proprietorship or partnership. They may put their personal assets up as collateral for business-related debt as well. In these situations, if the business struggles, the individual owners can be liable for debts on behalf of the company. These significant business debts can trigger bankruptcy.

Keep in mind that these situations can often be avoided if you create a separate legal entity for your business, such as a limited liability company or corporation.  

Severe Medical Complications

Medical bills are one of the top reasons that individuals file for bankruptcy. If someone does not have insurance and contracts a debilitating condition, such as cancer, he or she may lose the ability to work and must still find a way to foot large medical bills. In some situations, even smaller non-medical debts can end up piling on with medical debts to hit the debt ceiling of a Chapter 13 bankruptcy filing.

Individual Chapter 11 bankruptcies are not as frequent as Chapter 7s or 13s, but they can occur. In fact, they offer a good way to still file for bankruptcy, even if you do not qualify under another Chapter. Learn more about your bankruptcy options by contacting us today.