Page 22 - Bankruptcy Volume 1

Chapter 11 — Reorganization

Chapter 11 is reserved for entities as opposed to individuals, although individuals with significant lia-
bilities must file under Chapter 11 and not under Chapter 13. Entities filing under Chapter 11 of the
Bankruptcy Code are generally seeking to reorganize and continue operations, whereas those that will
cease operations and liquidate are generally candidates for Chapter 7. However, see the discussion of
"liquidating 11s" in chapter 15, “Postconfirmation and Pre-Case Closing Reporting Requirements With
and Without a Liquidating Trust,” of this practice aid. A Chapter 11 case may be commenced by either a
voluntary (filed by the debtor) or involuntary (filed by the debtor’s creditors) petition. In any event, the
filing gives rise to the automatic stay and the many requirements discussed elsewhere in these materials.
In contrast to a Chapter 7 filing, debtors may have more control over the liquidation process because a
trustee will not automatically be appointed and many times the companies’ existing management or re-
placement management is permitted to continue to operate the business as a debtor-in-possession.

Chapter 11 — Subchapter V — Small Business Debtor Reorganization

Beginning in 2020, Chapter 11 was expanded as a result if the Small Business Reorganization Act of
2019 to include a new Subchapter V. The intent was to provide small businesses with an opportunity to
reorganize in a manner similar to Chapter 13. Subchapter V can be utilized by “small business debtors”
with a limited amount of debt, approximately $2.7 million (2020). Debtors that qualify will be required
to file a plan within 90 days and have the exclusive right to do so. There will be no creditors committee
appointed. A standing Trustee will be appointed and act similar to a Chapter 13 Trustee. The plan will
call for the repayment of debts over a period of time, usually three to five years.

Chapter 12 — Adjustment of Debts of a Family Farmer or Fisherman

Congress passed Chapter 12, reserved for farmers, in 1986 to address the specific needs of family farm-
ers with regular annual income. Farmers who are not eligible for relief, or who elect not to seek relief
under Chapter 12 of the Bankruptcy Code, may file under a different chapter.

Chapter 13 — Adjustment of Debts of an Individual with Regular Income

Chapter 13 is available to individuals with regular income who wish to adjust their debts as part of a
plan approved by the court and creditors. These cases are administered by a standing panel of Chapter
13 trustees. As opposed to Chapter 7, in which assets, net of exemptions, are available to be liquidated to
satisfy the debtor’s obligations, under Chapter 13, the debtor is allowed to retain its assets so long as it is
meeting its obligations to pay back its debts over time — usually three to five years. Advantages of
Chapter 13 over the alternative of a liquidation under Chapter 7 include the ability to stop certain fore-
closure proceedings and that the debtor will not have any direct contact with creditors for the length of
the Chapter 13 proceeding. Additionally, the eight-year prohibition on re-filing does not apply to Chap-
ter 13. Individuals may seek relief under Chapter 13 relief provided that the individual’s unsecured debts
are less than $360,475 and secured debts are less than $1,081,400 (see 11 USC 109(e)). These amounts
are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership
may not be a Chapter 13 debtor. The Bankruptcy Code should also be consulted with regard to provi-
sions requiring debt counseling before a Chapter 13 filing in certain circumstances and instances of inel-
igibility due to prior dismissal of a bankruptcy under Chapter 13 or any other chapter.

In addition to the Bankruptcy Code, a practitioner must also be aware of the applicability of state law, as
well as federal and state case law decisions and both federal and local rules. The laws of federal suprem-
acy operate to prohibit states from passing laws that interfere with or supersede federal bankruptcy law;

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