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The Absolute Priority Rule And Individual Chapter 11 Bankruptcy Debtors

Posted By admin || 18-Jun-2010

Absolute Priority Rule And Individual Chapter 11 Bankruptcy DebtorsBefore 2005 Bankruptcy reform, individuals filing Chapter 11 bankruptcy were subject to a rule known as the Absolute Priority Rule which stated that all debtors filing Chapter 11 bankruptcy have to repay all of their debts in full. Specifically, if the shareholders are going to retain any interest in the reorganized company, then they must repay all of the unsecured creditors in Chapter 11 bankruptcy. However, the 2005 Bankruptcy reform changes revised that portion of the bankruptcy law allowing individual debtors (and married couples) to repay their debts in the same way they would have in Chapter 13 bankruptcy.

The bankruptcy code now states that individual and married debtors in Chapter 11 bankruptcy may repay their debts according to their ability over a period of up to 5 years.  And while filing Chapter 11 bankruptcy is more expensive than filling Chapter 13 bankruptcy it can be beneficial to some individual and married debtors who have a lot of assets or who have exceeded the debt limits of Chapter 13 bankruptcy. Some debtors who qualify for Chapter 13 bankruptcy, may not be able to maximize the benefits of bankruptcy using that chapter and therefore filing Chapter 11 bankruptcy is often a better choice for them. Also, Chapter 11 bankruptcy allows the modification of certain loans such as a car loan that is not allowed in Chapter 13 bankruptcy. 

If you are a high income debtor with lots of assets or if you have exceeded the debt limits of Chapter 13 bankruptcy, you may want to consider filing Chapter 11 bankruptcy.  Take the time to talk to an experienced bankruptcy attorney about how Chapter 11 bankruptcy can work for you.

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