Question Can someone help with ques re: Personal Ch 11?

[last2cents]

This is not for me - but for a friend

I know there have been some folks out here that have, or are aware of someone that has, filed personal ch. 11.

Can someone enlighten me as to why that would be advantageous for an individual?

[HHM]

That is a vague question. Sort of depends on the circumstanes.

The person may be over the debt limits for a chpater 13. You can only have so much unsecured and secured debt to file a chapter 13. They are probably trying to hold on to some property and can't do it in a chapter 13 (probably cause of debt limits).

[MSbklawyer]

Debt limits, as HHM said, and also, there is no means test. A chapter 11 with a liquidation plan is just like a chapter 7 for all intents and purposes. You may not be able to get into chapter 7 because your income is too high. But yet, you can't afford the 20K or so a chapter 11 will cost you, so you're stuck with a 13 where you have to put all your disposable income into a plan for 5 years.

The rich, however, are not so limited. See, they can afford the costs of an 11 -- which can effectively be a 7 -- and leave those pesky 5 year plans for the "little people" to deal with.

Now, do you think those uptight republican a$$holes who pushed this bill through weren't aware of that special provision for the rich when they rammed this bill through?

[HHM]

Well, I don't exactly agree with that assessment...just because there is no means test does mean you can do a closet chapter 7 wrapped in a chapter 11 robe. In fact, that would actually be very difficult to do. Creditors have far more rights in a chapter 11, and the UST is the entity that oversees chapter 11's.

[catleg]

Let me just toss this one out there for public humiliation

Besides stuff like:
--self administered plan, supervised by US Trustee
--plan must run for at least 60 months, starting from confirmation
--lots of legal fees, accounting fees

The biggie I see is this:
As I understand it, a chapter 11 requires commitment of all the debtors disposable income to "the plan", vs a chapter 13 which requires the commitment of all the debtors disposable income to "unsecured creditors".

So if you have any significant secured debt you can pay it down rather than pay the unsecured creditors.

Go ahead shoot some holes in it.

[last2cents]

Thanks everybody - you all basically answered the question for me.

The case in question involves a lot of real estate - and a debt load (mix of secured and unsecured) that is topping out around $5.0M....so that basically answers why a ch 11 would be the way to go in that scenario.

(and thank God - its not my case!!! )

[HHM]

Thanks everybody - you all basically answered the question for me.

The case in question involves a lot of real estate - and a debt load (mix of secured and unsecured) that is topping out around $5.0M....so that basically answers why a ch 11 would be the way to go in that scenario.

(and thank God - its not my case!!! )

Your friend must be trying to hang on to the real estate (hopefully there is a good financial reason to do so), most real estate investors are better off simply surrendering their properties and filing a non-consumer chapter 7.

Assuming the resources or lending is available, he can cram down the mortgages on the properties, but he has to pay that crammed value in the chapter 11. For example, if you own a rental condo with a mortgage of $120,000, but the condo is only worth $50,000 today; in a chapter 11, you can cram down the condo and pay only $50,000. The only catch is, you have to pay the $50,000 within the chapter 11. (this is normally done by receiving outside investment or financing).