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When it comes to bankruptcy and family law, the justice system can seem like an endless web. We aim to simplify and offer as much insight in to the legal system as possible. Here you will find numerous articles in which we lay out our insight to the justice system. We will cover everything from chapter 7 bankruptcies to how to prepare for your divorce case.

Is a Chapter 11 Bankruptcy a Good Idea?

Daniel Usiak - Sunday, June 14, 2015
Is Chapter 11 Bankruptcy a Good Idea?

We’re often surprised to read about the latest corporation entering “chapter 11 bankruptcy protection.” The company seemed strong – a corporate titan that was too big to fail. Indeed, chapter 11 is not necessarily a recipe for failure. Corporations often emerge stronger, leaner, and more profitable – as if the entire chapter 11 process was little more than a financial rehab, a haven from the exacting demands of markets, shareholders, and the justice system.

It’s almost never a good idea for an individual to file for chapter 11 bankruptcy. We should know. Take it from all of us at Usiak Law: do not file a chapter 11 bankruptcy unless you absolutely need to.

So who needs to file a chapter 11 bankruptcy? The current standards set the bar at about $1,000,000 of secured debt, or approximately $340,000 in unsecured debt. At this level of debt, individuals no longer qualify for chapter 7 or chapter 13 bankruptcies. The standards change on a quarterly basis, however, so it’s always wise to check the most up-to-date bankruptcy guidelines, and, of course, confer with a competent attorney, before making any legal decisions.

While the chapter 11 debt baselines may sound high, the reality is that for many entrepreneurs or other self-employed Americans, bad luck in business can couple with a misguided corporate structuring arrangement to put someone on the hook for significant debt.

Let us make up an fictitious example of a client who owed multiple millions of dollars after a series of failed real estate deals. Had he structured his business in an alternative way, it might have been possible to avoid such financial exposure – but his business decisions exposed him to significant liability. So significant, in fact, that he was not able to file a chapter 7 or chapter 13 bankruptcy.

Fortunately the chapter 11 protections can still provide the tools to get out of debt. It’s crucial to find a lawyer with appropriate specialization. Many run-of-the-mill bankruptcy attorneys do not handle chapter 7 or chapter 13 filings on a regular basis, so make sure to ask your attorney about his specific experiences before proceeding with your case.