While many individual debtors opt for Chapter 11 bankruptcy only when they have exceeded the debt limits imposed on Chapter 13 bankruptcy debtors, there are situations when filing Chapter 11 bankruptcy may be beneficial even if the debtor is well within the debt limits of Chapter 13 bankruptcy.
Why a debtor may want to choose Chapter 11 over Chapter 13:
- The debtor considering bankruptcy owns several investment properties but their home is facing foreclosure.
- The debtor considering bankruptcy owns investment properties that have significant equity in them but their personal home’s mortgage is upside down.
- Their investment properties have tenants who are failing to pay rent due to the economy AND the debtor considering bankruptcy has burned through their savings and is experiencing cash flow problems.
If the debtor is experiencing the above mentioned scenarios then filing Chapter 11 bankruptcy may be beneficial because they provide the following benefits.
- Chapter 11 bankruptcy debtors are not required to make monthly mortgage payments between the time that they file bankruptcy and the bankruptcy plan confirmation. This can mean that the debtor will have six months or more where they are not required to make a mortgage payment. But if this same debtor filed Chapter 13 bankruptcy, they would need to begin paying their mortgage 30 days after they filed Chapter 13 bankruptcy.
- The debtor can gain time in Chapter 11 bankruptcy to sell one of their investment properties and use the proceeds to fund their Chapter 11 bankruptcy. Some debtors who have enough equity in their investment properties can exclusively use the proceeds of a property sale to repay creditors in Chapter 11 bankruptcy.
If you have investment properties and are facing foreclosure on your personal home, contact a bankruptcy attorney to find out if Chapter 11 bankruptcy will work for you.