Texas residents may associate Chapter 11 bankruptcies with major corporations like General Motors, American Airlines and Macy’s, but small business owners may also seek debt relief by filing a Chapter 11 petition. While the vast majority of people who file for personal bankruptcy do so by filing Chapter 7 or Chapter 13 petitions, a Chapter 11 bankruptcy could make more sense when individuals have debts that exceed certain limits. The current limits for Chapter 13 cases are $419,275 for unsecured debts and $1,257,850 for debts secured by assets such as real estate. These limits are updated every three years.
Chapter 11 bankruptcies are not just for big businesses
Chapter 11 bankruptcies are usually only mentioned in the press when major corporations run into financial problems and must reorganize their debts, but sole proprietors, partnerships and LLCs can also take advantage of the protections offered by a Chapter 11 petition. One of the main benefits of Chapter 11 bankruptcies is that they allow businesses to remain open while thorny financial matters are sorted out. This is done by making Chapter 11 petitioners both debtors and debtors-in-possession.
The rights and responsibilities of debtors-in-possession
The Chapter 11 bankruptcy rules were written to allow companies to recover from financial setbacks, which is why debtors-in-possession have virtually the same responsibilities and rights as bankruptcy trustees. Debtors-in-possession retain property, can take legal action to prevent money being transferred to creditors and are able to seek financing and accept or reject contractual offers. However, court approval must be obtained before many of these powers can be exercised. When judges determine that the debtor-in-possession is not acting in the best interests of the creditors involved, they may appoint a bankruptcy trustee instead.
Taking action when faced with an unmanageable financial situation
Attorneys with experience in business bankruptcy cases may explain the process for filing a Chapter 11 bankruptcy and make sure that supporting documents like schedules are filed along with the petition. If you own a business and believe that you might benefit from a Chapter 11 reorganization plan, an attorney may help you draft a disclosure statement that both your creditors and the court should find acceptable.