While businesses often choose to file bankruptcies under Chapter 11, a Chapter 11 bankruptcy is also available to individuals. A Chapter 11 bankruptcy allows both businesses and individuals to restructure their debt to make their finances manageable. It may allow both individuals and businesses to avoid losing assets to liquidation, foreclosure or repossession. It may provide both businesses and individuals a path to financial security, while allowing them to retain control of their affairs (subject to court supervision) along the way.
A corporation, LLC, or other business entity typically chooses a Chapter 11 bankruptcy where it generates enough cash flow to continue operating, but not enough to pay debts in full or on schedule. If the business elects not to liquidate, a Chapter 11 case may allow it to keep its assets and restructure its business and its debts.
Some entrepreneurs operate their business in their own name or under a dba, and will chose a Chapter 11 bankruptcy for primarily business purposes. Others own a separate business entity but have signed guarantees of the business debt in addition to their mortgage and consumer debt. In either case, a Chapter 11 bankruptcy may offer these individuals advantages over liquidation, and is sometimes the only bankruptcy option available to them.
Other individuals may choose a Chapter 11 bankruptcy because they need bankruptcy relief and are not eligible for, or would prefer to avoid, a Chapter 7 or Chapter 13 bankruptcy. Individuals with above-median income and primarily consumer debt are often not eligible for a Chapter 7 bankruptcy (home mortgages typically qualify as “consumer debt”). Others may be eligible but have non-exempt assets they do not want to liquidate. The only bankruptcy options would then be a Chapter 13 or a Chapter 11 case. However, individuals with more than $360,475 in unsecured debt or more than $1,081,400 in secured debt are not eligible for a Chapter 13 bankruptcy. (These figures will be adjusted April 1, 2013.) Thus, a Chapter 11 bankruptcy may be the only bankruptcy option for some above-mediate individuals with debts above the statutory limits , or the preferred option for some individuals with significant nonexempt assets.