If a debtor in Florida has debts they can no longer pay, bankruptcy allows them a legal way out. Consumers have the option of several types of bankruptcy, the most common types being Chapter7 and Chapter 13. Another common type includes Chapter 11, which is similar to Chapter 13, but differs.
Chapter 11 overview
Chapter 11 is usually reserved for businesses or individuals who need time to pay their debts, or debtors who don’t qualify for Chapter 7 or Chapter 13. Individuals whose unsecured debts exceed $394,725 or $1,184,200 in secured debt may file Chapter 11 bankruptcy. Unlike Chapter 7, it rarely requires the selling of assets to pay creditors.
Businesses under Chapter 11 also may remain open, even if they aren’t currently paying. Cases start by filing a petition with the court either voluntary or involuntary. Then the court approves a plan to repay debts gradually over a few years. It also activates the “automatic stay” that prohibits creditors from seeking further collection of debts.
The debtor or business owner commonly may suggest a plan to the court, which at least requires ways to downsize or cut expenses. The filer could still choose to sell some assets to pay creditors. In February 2020, the Small Business Reorganization Act passed to make Chapter 11 easier for small businesses.
The business owner of individual debtor retains rights over property, so they are referred to as “debtor in possession” except in fraud cases. However, a business owner needs the court’s permission to make some decisions, such as selling assets or terminating leases. The debtor should not have received a case dismissal within the last 180 days from failure to comply or appear in court, and they must take credit counseling from a court-approved agency.
Chapter 11 bankruptcy law tends to be more complex end expensive than other bankruptcy types. For this reason, some businesses seek other options. A debtor may want to consult an attorney for advice.