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Chapter 11

The bankruptcy code allows individuals to file for bankruptcy relief under three chapters of the code – chapters 7, 11 and 13. It is generally individuals with large amount of consumer debt AND are above the median income in their state of residence that have no choice but to file a chapter 11.

Below are some changes that took effect when congress last revised the code under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. These changes are relevant to chapter 11 filed by individuals – and not corporations.

  1. Post bankruptcy filing income from personal services is property of the bankruptcy estate.
  2. The plan of reorganization must be funded with post-petition income. However, state law wage exemptions may apply and not be allocated towards the Plan.
  3. The individual must file copies of their paystubs from any and all employers for the 60 days preceding the filing of their case.
  4. The individual must comply with the requirement of obtaining credit counseling and budget analysis prior to filing.
  5. The Plan of reorganization may be modified after confirmation.
  6. An objection by an unsecured creditor to the confirmation of the Plan, compels the debtor to distribute value not less than the projected disposable income over five years.

It important to keep in mind that most individual debtors will be better served by filing a chapter 7 or 13, and not a chapter 11. However, for those individuals that do not qualify for chapter 7 due to their income, or chapter 13 because their debt limit exceeds the statutory limit allowed for a chapter 13, chapter 11 would allow them the opportunity to achieve the proverbial fresh start.

Chapter 11 has the mechanism in place to help homeowners save their home just like in a chapter 13. Homeowners can propose plans of reorganization that cures their mortgage default so that at the completion of their bankruptcy, they are current with their mortgage. Additionally, homeowners can strip-off wholly unsecured second mortgages when their home is underwater. Lastly, those with investment properties can strip down first mortgages to the fair market value of their non-homestead properties.

Chapter 11 is complex and riddled with pitfalls for the unwary. With proper planning, debtors can strategize to place themselves in the best position to save their property or obtain their objectives in dealing with their creditors.

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 1,500 homes from foreclosure, eliminated $100,000,000 in mortgage principal and consumer debt, and have collected millions of dollars on behalf of our clients due to violations, negligence and fraud. Contact us for a free consultation to see how we may be able to help you.

Categories: Bankruptcy
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