Chicago Illinois Civil Litigation Lawyer

Forrest L. Ingram

Like Chapter 13, Chapter 11 is designed to allow individuals and/or businesses to continue in possession of their assets and to "reorganize" their debt, so as to emerge with less debt and fewer obligations. People are more familiar with businesses, such as GM, Chrysler, United Airlines, and K-Mart, filing Chapter 11 and emerging from it in a stronger financial position.

To learn more about Chapter 11 for businesses, visit our website, www.forrestingram.com and click on the "Business" tab under the FAQ's provided there.

FAQ

Why would an individual or a married couple file for relief under Chapter 11?

If you are an individual or a couple with assets to protect and you need reorganization rather than straight bankruptcy, you will look at Chapter 13 first. But if your secured and/or unsecured debts exceeds the eligibility limits for Chapter 13 ($360,475 in unsecured debts and $1,081,400 in secured debts), you may need to file for reorganization under Chapter 11. Similarly, if you own a business as a sole proprietor, or if you have membership interests in several limited liability companies, Chapter 11 may be your best way to protect yourself against creditors while reorganizing and restructuring your debts.

What must a Chapter 11 individual debtor do to file?

Individuals who file for Chapter 11 relief have the same initial filing requirements as they would have if they filed for Chapter 7 or Chapter 13. They must obtain a "certificate of credit counseling" at the time of filing, and a "certificate of debtor education" before discharge. They must also provide information requested in all the Bankruptcy schedules.

What schedules must be completed when an individual files for Chapter 11?

As with Chapter 7 and Chapter 13, the individual Chapter 11 debtor must submit schedules listing real property (A), personal property (B), requested exemptions (C), secured creditors (D), priority creditors (E), unsecured creditors (F), unexplained leases and executory contracts (G), codebtors (H), monthly income (I), and monthly expenses (J). There is one other document entitled "Statement of Financial Affairs" (or "SOFA") that must also be completed and filed.

May a husband and wife file joint Chapter 11?

Yes, as with other chapters, a husband and wife may file a joint Chapter 11 petition.

What immediate benefit does the individual and his business obtain from filing?

The Chapter 11 debtor benefits immediately from the "automatic stay" provision of the Bankruptcy Code - creditors are forbidden by federal law from making any attempt to collect on a debt that existed prior to the chapter 11 filing. See § 362(a).

What are the costs and fees for Chapter 11?

The costs and fees for Chapter 11 are far greater than the costs and fees for Chapter 7 or Chapter 13 for individuals. The current "Model Retention Agreement" for Chapter 13 cases generally requires a flat fee of $3,500, plus a filing fee of $274. Each attorney has a different flat fee arrangement for Chapter 7, where the filing fee is currently $299. Also, attorneys usually contract separately, and at hourly rates, for adversarial or contested matters that may arise in a Chapter 7 case, e.g., to defend against objections to discharge. Representation of the Debtor in a contested and adversarial matters in a Chapter 11 case are usually part of the engagement agreement between the client and the attorney. Each attorney contracts separately with Chapter 11 clients based on the Firm's hourly rates, plus the current filing fee ($1,000) and administrative fee ($39) for a total of $1039. Attorneys generally require a retainer equal to what they project they will generate in fees prior to filing and over the first four months after filing.

What services will a Chapter 11 attorney provide?

Prior to filing, your Chapter 11 attorneys will examine documents, analyze debts, discuss strategies for reorganization, draft schedules, and advise about credit counseling and other pertinent matters. After filing, during the first few months, your attorneys will file various motions, e.g., to engage professionals, to use cash collateral, to assume or reject leases or unexpired contracts, to sell assets, and the like. They will also represent the debtor at an Initial Debtor Interview with the U.S. Trustee, attend with the Debtor the "First Meeting of Creditors," and help the debtor to complete and file a disclosure statement and to draft and file a plan of reorganization.

What does it mean to be a "debtor in possession?"

During a Chapter 11 case, the assets of the Debtor become an "Estate" of the Debtor in bankruptcy, with the debtor himself acting as trustee. So the Debtor assumes an additional identity as "Debtor in Possession." As such, he has most of the powers and duties of an interim trustee in Chapter 7 cases.

How does the Chapter 11 case bring about the discharge of a debtor's debts?

The Debtor himself proposes a plan of reorganization and asks the creditors and court to approve it. If the court "confirms" the plan, with or without the vote of creditors, the confirmed plan becomes a new and binding contract between the Debtor and his creditors. During the pendency of the Chapter 11 case, the Debtor in Possession continues to operate his business (if he has one) and to possess and control his assets. When the individual chapter 11 Debtor "substantially complies" with the terms of the plan, his case can be closed. He will receive his discharge when he completes all of his duties under his plan.