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 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.