My very unique case: Filed Chapter 11 as an individual

[tempron]

Hello Folks, I'm feeling like one in a million and very well might be. I am posting this just in case there is someone out there that may be in the situation I was in. First let me say I am not Donald Trump. My base salary is 67K/year and I do earn commision/draw which is not gauranteed. My sinking ship had a variety of causes, namely a steadily decreasing income over the past 5 years with steadily increasing expenses....not a good combination. Throw in a bit of good old fashion denial and this Captain almost went down with the ship! Because of making too much $ for the original means test; and exceeding the debt limits of Ch 13, I had no choice but to File Chapter 11 as an individual. Because there is essentially less than 100 dollars left in my revised budget (even with surrendering my house); insituting the chap. 11 would have been unfeasable because there would barely be enough money to maintain the quarterly fees of the plan, not to mention the incredible burdon of the paperwork/reporting filing requirements. My attorney put a motion before the judge to convert the 11 to a chapter 7 and it was approved. Within the 11 law there is an extremely clear statement that there is an absolute right to convert an 11 to a 7, and thank god it worked. I am a single father with joint physical custody of two sons. I did not pass the original means test because the definition of household size came down to tax filing status, and I take the dependency deduction for my younger son only as indicated in my divorce agreement, but my child support reflects support for both sons. If I could have claimed a household size of three I would have passed and it would have been a chapter 7 case right from the start. So lots of little legal catch 22's, but all is working out fine so far. I am most fortunate to have a superb lawyer, who incidentally could have charged so much more for filing the 11; his fee was very reasonable. For the short time when I was comming to grips with being in Chapter 11, there was a bit of an ironic s side of this to me...because I was "debtor and possesion" and essentially the Trustee of my own estate. Oh, my filing date co-incideded with Chryslers Chapter 11 filing. If anyone has any questions feel free to ask. I am optimistic about the future, although my budget is very tight, everything is accounted for to cover the needs of myself and two sons...there won't be any extravagances anytime soon, but we will eat well and have a roof over our heads. This has been the single biggest life changing event, even exceeding my divorce...which was about 6 years ago. I was your typical affluenza filled post yuppie zombie, the more I purchased the more I needed. Trophy house, luxury cars, toys, trips, on and on never led to the slightest bit of satisfaction for me. I actually have been living on a "cash only" basis for about 4 months now and it's absolutely wonderful, and I've been so traumatized that though of charging anything would make me vomit.

[justbroke]

I hear ya! I was almost a Chapter 11 debtor (debtor in possession) myself. I like that title though "debtor in possession".

Very good news to learn of your Conversion to Chapter 7. Have you been discharged yet?

[jadams]

Are either of you more comfortable giving more detail in regards to how your debt was structured? Mortgage, CC's, Student Loans?

I don't mean to make you feel like you're in a fish bowl, just the more I read about it, the more it seems the amendments to the BK code were so poorly drafted they are full of unintended consequences.

The fact that someone making $67K a year could have enough debt to force them into a CH 11 fascinates me. That's hardly a high-net-worth individual income, yet the assumption seems to be only an extremely high net worth individual would need to go into an 11.

Was it student loans? Most of the cases I read it seems to be large student loans that do it.

Which seems silly, considering the student loans have that magical status of being impervious to almost anything that happens in a BK.

[justbroke]

Are either of you more comfortable giving more detail in regards to how your debt was structured? Mortgage, CC's, Student Loans?

About $1,000,000 in mortgage balances, about $207,000 in credit cards, and all student debt was already paid.

The fact that someone making $67K a year could have enough debt to force them into a CH 11 fascinates me. That's hardly a high-net-worth individual income, yet the assumption seems to be only an extremely high net worth individual would need to go into an 11.

It has nothing to do with net worth, but with your debt types and balances are. If you are over the secured debt limit of $1,010,000 (just over 1 million), you don't qualify for relief under Chapter 13. Similarly, if you are over $336,400 in unsecured debt, you also don't qualify. Your only choice is Chapter 7 (liquidation) or Chapter 11.

Unfortunately, as tempron mentioned, Chapter 11 is "expensive" to be in and very complex. It costs over $1,000 just in filing fees for Chapter 11, not to mention lawyer fees which would easily be triple that of a Chapter 13 ($1,800 being norm for Chapter 13 and $5-7K being "low" for chapter 11.... although you could get it done for less...)

Was it student loans? Most of the cases I read it seems to be large student loans that do it.

Not mine! Besides, student loans don't count as they are non-dischargeable anyhow.

I don't know tempron's situation, but he may be invested in property. Also, while his base salary is $67K, he is probably not too unlike myself earning commission and bonuses. My commissions and bonuses are near non-existent, and I no longer get raises.

Yes, Congress needs to re-look at the debt limits in 11 USC 109(e) because many Florida and Californian (and some Nevada) debtors are easily exceeding the secured debt limit by having two homes! (I have two homes.) This is forcing them into a no-win Chapter 11, or just not filing. The other alternative is to try to convince, as tempron did, the Trustee that the only recourse is a liquidation under Chapter 7.

[tempron]

to clarify...

mortgage deficiency: 230,000
all other unsecured debt: 115,000 (no student loans)


I am a customer of the former IndyMac bank. If you don't know they were taken over by the government about 8 months ago and were famous for their no doc, quick close products. I refied in Aug. of 2007 and needed to act fast because at that time my Countrywide payoption arm exploded to 6500/mon. The new payment was in the 4K range, which at my income level at the time left me just treading water.....barely....And also at that point in time, I had zero credit card debt....but thus the spiral commenced; again in the context of steadily decreasing income. I was mortgaged all the way up to 720K. I will make no excuses, but in my eyes it took two to tango (me and the banks) for this monumental mess to amount.

In a convoluted way thus far, the law has worked for me. There are no assets, which is amazing considering I've made a six figure income since the age of 28 (now in my late forties). I am both grateful and humbled by the action of the Judge.

Needless to say this has been a life changing event, for the good. And again I would have to write my entire life story for this particular case to make sense. I graduated from college during the Reagan era in the mid eighties and back then the push was on....getting "stuff" was very much in vogue. I worked in the brokerage business (stocks,bonds) for a couple of years andI can remember during training our class being told to go out and get into debt so you'lll have the motivation to sell more each month! And they were freaking serious, but that was the eighties culture. There was a time when having the biggest trophy house (custom 4 bedrooms, 4 baths on 3 acres on a scenic road) was really incredibly important to me. It was also equally important that I was driving a german luxury car. Well, that person is long gone now. My seemingly magical ability to earn a higher and higher income each and every year petered out just after 9/11.....nothing was the same after that. And I must also say that my supreme denial about how bad my situation had become was so strong, that I honestly did not seriously consider filing until I sat down with my lawyer for the consultation...I was just toying with the idea..but after the consult experienced a revelation so powerful I need to have a drink upon leaving I was so shook up! I am now living in a nice 1000 sq. 2 bedroom apartment with one bath, and I could not be happier. You know what really makes me happy now?.....taking a hike with my two sons on a bright sunny day.....and then getting an ice cream cone.

[jamesol]

Tempron, may I ask how much your attorney charged you for the ch. 11?

Hello Folks, I'm feeling like one in a million and very well might be. I am posting this just in case there is someone out there that may be in the situation I was in. First let me say I am not Donald Trump. My base salary is 67K/year and I do earn commision/draw which is not gauranteed. My sinking ship had a variety of causes, namely a steadily decreasing income over the past 5 years with steadily increasing expenses....not a good combination. Throw in a bit of good old fashion denial and this Captain almost went down with the ship! Because of making too much $ for the original means test; and exceeding the debt limits of Ch 13, I had no choice but to File Chapter 11 as an individual. Because there is essentially less than 100 dollars left in my revised budget (even with surrendering my house); insituting the chap. 11 would have been unfeasable because there would barely be enough money to maintain the quarterly fees of the plan, not to mention the incredible burdon of the paperwork/reporting filing requirements. My attorney put a motion before the judge to convert the 11 to a chapter 7 and it was approved. Within the 11 law there is an extremely clear statement that there is an absolute right to convert an 11 to a 7, and thank god it worked. I am a single father with joint physical custody of two sons. I did not pass the original means test because the definition of household size came down to tax filing status, and I take the dependency deduction for my younger son only as indicated in my divorce agreement, but my child support reflects support for both sons. If I could have claimed a household size of three I would have passed and it would have been a chapter 7 case right from the start. So lots of little legal catch 22's, but all is working out fine so far. I am most fortunate to have a superb lawyer, who incidentally could have charged so much more for filing the 11; his fee was very reasonable. For the short time when I was comming to grips with being in Chapter 11, there was a bit of an ironic s side of this to me...because I was "debtor and possesion" and essentially the Trustee of my own estate. Oh, my filing date co-incideded with Chryslers Chapter 11 filing. If anyone has any questions feel free to ask. I am optimistic about the future, although my budget is very tight, everything is accounted for to cover the needs of myself and two sons...there won't be any extravagances anytime soon, but we will eat well and have a roof over our heads. This has been the single biggest life changing event, even exceeding my divorce...which was about 6 years ago. I was your typical affluenza filled post yuppie zombie, the more I purchased the more I needed. Trophy house, luxury cars, toys, trips, on and on never led to the slightest bit of satisfaction for me. I actually have been living on a "cash only" basis for about 4 months now and it's absolutely wonderful, and I've been so traumatized that though of charging anything would make me vomit.

[Clouddancer]

So do I understand correctly that the court cannot deny the conversion from a 11 to a 7 because of median income/means test?

[justbroke]

So do I understand correctly that the court cannot deny the conversion from a 11 to a 7 because of median income/means test?

No, you're not understanding it fully.

Chapter 7 is not so much about the median income, but is more about a debtor not having the "means" to return a meaningful dividend to unsecured creditors under another Chapter of the Bankruptcy Code (usually Chapter 13).

The court can deny conversion to a Chapter 7 for several reasons. First, whether you pass the means test. Second, whether you case is an abuse. Third, whether you filed in bad faith. Finally, looking at your "totality of circumstances".

In this particular case, and as in many Consumer Chapter 11 cases, the debtor doesn't qualify for a Chapter 13. They are forced to a Chapter 11. however, the Chapter 11, along with its quarterly reporting, is rather expensive! That could make a Consumer Chapter 11 Debtor unable to maintain a Chapter 11. There only choice is to convert to Chapter 7 and hop that the US Trustee agrees that this is the only feasible chapter for the debtor.

[HHM]

Most individual debtors who file an 11 end up in a 7. And frankly, most should be a 7 from the start, but the debtor typically harbors unrealistic goals and expectations about there ability to retain assets.

[tempron]

Most individual debtors who file an 11 end up in a 7. And frankly, most should be a 7 from the start, but the debtor typically harbors unrealistic goals and expectations about there ability to retain assets.

All I can tell you is in my case there was no other choice but to file an 11 if I wanted to file bankruptcy, period.....and there are no assets at all......it's all gone.

[Clouddancer]

No, you're not understanding it fully.

Chapter 7 is not so much about the median income, but is more about a debtor not having the "means" to return a meaningful dividend to unsecured creditors under another Chapter of the Bankruptcy Code (usually Chapter 13).

The court can deny conversion to a Chapter 7 for several reasons. First, whether you pass the means test. Second, whether you case is an abuse. Third, whether you filed in bad faith. Finally, looking at your "totality of circumstances".

In this particular case, and as in many Consumer Chapter 11 cases, the debtor doesn't qualify for a Chapter 13. They are forced to a Chapter 11. however, the Chapter 11, along with its quarterly reporting, is rather expensive! That could make a Consumer Chapter 11 Debtor unable to maintain a Chapter 11. There only choice is to convert to Chapter 7 and hop that the US Trustee agrees that this is the only feasible chapter for the debtor.

What does this mean under the code?
"A debtor in a case under chapter 11 has a one-time absolute right to convert the chapter 11 case to a case under chapter 7." If it's an absolute right then how could they deny it?

[justbroke]

What does this mean under the code?
"A debtor in a case under chapter 11 has a one-time absolute right to convert the chapter 11 case to a case under chapter 7." If it's an absolute right then how could they deny it?

If seems that any Chapter 11, 12, or 13 debtor has an absolute right to convert.

However, the catchy part is... actually qualifying. Otherwise, people would just file Chapter 13, then immediately convert to Chapter 7. The provision was added because -- I think -- before the BAPCPA you had to make a Motino to Convert and "get permission". Now you can just file a Notice with the Court and serve it on the Standing Trustee and the U.S. Trustee. Then you pay the conversion fee... and then you're done!

However, you must still otherwise qualify to be a debtor under that Chapter (Chapter 7). This has been well litigated and while you have a right to convert... you also have the ability to be rejected.

[HHM]

All I can tell you is in my case there was no other choice but to file an 11 if I wanted to file bankruptcy, period.....and there are no assets at all......it's all gone.

Note, I did say "most"

As for the right to convert. All that means is you do not need to do anything but simply file the conversion notice. The judge for the case you are converting "from" (i.e. 11, 12, 13), has no power to deny the conversion.

HOWEVER, once you show up in the chapter 7, then the issues of qualifying, good faith, totality of circumstances come up to determine if you can stay in the chapter 7.

[goingcrzy]

Hi all-

I am sorry for opening an old thread back up!

We are going to court in Oct over a presumption of abuse on our mortgage payment. If we can't do a 7 we are going to be stuck in an 11. I am trying to take advantage of the last slow days of summer to read up on 11s.

Does anyone know what the average cost per month of an 11 would be (quarterly fees and legal fees) and what type of paperwork (and time) are really involved. Hubby and I own our own business and have very little free time (other than what time I spend here

We moved our business back into the house last year and are busting at the seams. If we walked away from our house to get something smaller, we would need to get office space again - if anyone would lease to us.

So I am trying to add up the cost of keeping the house and doing a chap 11

or walking away from the house, get an office and do the chap 11.

Thank you for any input!!!

[HHM]

There is simply no way to guess as to the cost, there really is no average. It depends on the size of case, the complexity, and what you are trying to accomplish. I assume you know you can only convert to an 11 because you are over the debt limits in a chapter 13.

Does your current attorney know anything about 11's (most don't), chapter 11's are fairly specialized. Most attorneys either do 7 and 13's, or only 11's; very few, if any, handle 7, 13 & 11. Chapter 11's are an entirely different ball game.

If you are a "small" chapter 11; you might find an attorney willing to take $10,000 "to start". But some attorneys wont even talk to you for less than $25K-50K