Chapter 11 Reorganization of Debts for an Individual

Bankruptcy provides a way for both individuals and businesses to get a fresh financial start when debts become unmanageable. There are several types of bankruptcy, differing in solutions to debt problems, and each "chapter" or type is generally suited to a certain type of debtor.

Chapter 11 bankruptcy reorganizes and restructures the filer's debts, and is mainly used by corporations. However, Chapter 11 can also be used by individuals. Find out if Chapter 11 is right for you.

Chapter 11: Business Debtors and Personal Finances

These businesses may file a Chapter 11 bankruptcy case:

When a corporation is the debtor, and you're a stockholder, your personal assets aren't at risk. Only your investment in your stock is on the line in a bankruptcy case.

If you're a partner in a partnership, the partnership also exists as a separate entity. However, unlike a corporation, creditors may be able to reach your personal assets to pay partnership debts. You may need to file an individual bankruptcy case to protect your personal assets.

If you own a sole proprietorship, you are the debtor. You don't have a separate identity from your business. So, both business and personal assets are involved in a Chapter 11 case.

Sometimes individuals also choose to use Chapter 11 if they can't use Chapter 13 because their debts are too high, or they have very complex finances.

Chapter 11 and Getting Started

Chapter 11, like other bankruptcy cases, starts with filing a petition, paying required filing and administrative fees, and schedules detailing your income, assets and debts.

The automatic stay goes into effect, stopping creditors' collection efforts and lawsuits against you. After you file, the bankruptcy clerk notifies all of your creditors and sets up the required creditors' meeting. The US trustee and your creditors use this meeting to confirm your information and can ask questions about your finances.

Debtor in Possession

If you file for Chapter 11 bankruptcy, you are known as a debtor in possession, which means that you keep possession of your property (which forms the bankruptcy estate) while reorganizing your debts. In other kinds of bankruptcy cases, the trustee takes control of the bankruptcy estate.

You remain in possession until one of the following takes place:

  • Your reorganization plan is confirmed
  • Your case is dismissed
  • Your case is converted to a Chapter 7 bankruptcy case; or
  • A bankruptcy trustee is appointed

It's rare for a bankruptcy trustee to be appointed in a Chapter 11 case unless the court decides you're incompetent or dishonest, have committed fraud, or have mismanaged the bankruptcy estate.

You perform many of the duties that a bankruptcy trustee would perform in cases filed under other bankruptcy chapters, such as filing required documents with the court. You also have many of the rights of a bankruptcy trustee, such as the right to hire professionals to assist you, and the right to use, sell or lease property of the bankruptcy estate.

The US Trustee

The US trustee plays a major role in overseeing a Chapter 11 case and making sure the debtor submits the required reports and quarterly fees. The US trustee also monitors other documents filed with the court, such as compensation applications submitted by hired professionals, and debt reorganization plans.

If you fail to properly administer your case, the US trustee may file a motion with the court to either have your case dismissed, or convert the Chapter 11 case to Chapter 7.

Your Debt Reorganization Plan

You must file a debt reorganization plan along with a required disclosure statements on your finances. The debt reorganization plan explains how your creditors will be paid. Your creditors use the disclosure statement to asses your reorganization plan and decide if it's fair.

The court must approve your disclosure statement, followed by the creditors' vote on the plan. The court conducts a hearing to approve the plan and handle objections to plan approval.

The court looks at these factors when deciding to approve your plan:

  • Compliance with bankruptcy law
  • Whether you proposed the plan in good faith
  • Whether the plan is likely to succeed without the need for further financial reorganization


Once your plan is confirmed, you'll receive a discharge from any debt that existed before the bankruptcy petition was filed. Discharge ends your responsibility for the debt. Of course, you must make all of the payments set forth in the debt reorganization plan. Once you meet all reorganization plan conditions, the bankruptcy court issues a final decree closing your case.

Questions for Your Attorney

  • How long does a Chapter 11 bankruptcy take, from start to close?
  • How often do creditors challenge a reorganization plan?
  • Are all my debts eligible for discharge?

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