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New Jersey Individual Chapter 11 Bankruptcy Filing - The Basics - Somerville, NJBankruptcy is never anyone’s first option, but it can be their only one when debt begins to pile up too high. Yet even bankruptcy offers filers a choice: which Chapter to file under. Chapters 7 and 13 are perhaps the most common, but an individual filing under Chapter 11 can be, for some, the perfect fit. This article covers the basics that any debtor needs to know about Individual Chapter 11 Bankruptcy in New Jersey, including:

  • How an individual filing of Chapter 11 compares to other bankruptcy Chapters (notably, 7 and 13).
  • The eligibility requirements for filing under Chapter 11 as an individual in New Jersey and the key steps for doing so.
  • The protections Chapter 11 offers and the duties and responsibilities the debtor must follow to benefit from them.

While Chapter 11 bankruptcy filings are most commonly associated with businesses, New Jersey law permits individuals to file under it too. Although it is more rare, it can offer some substantial advantages.

What Is The Purpose Of An Individual Chapter 11 Bankruptcy Filing In New Jersey?

Individual Chapter 11 bankruptcy filing in New Jersey allows those who otherwise wouldn’t qualify for Chapter 13 to attempt to reorganize their debts and benefit from other Chapter 11 protections.

It enables individual debtors to try to catch up on mortgage arrearages in a different way than in Chapter 13. In addition, they can try to restructure debt on investment properties and also try to address credit card and medical, and other commercial debt. When neither Chapter 13 (a personal financial reorganization case) nor Chapter 7 (liquidation) are not the preferred alternative for dealing with debt, Chapter 11 might just be.

How Does An Individual Chapter 11 Bankruptcy In New Jersey Differ From Other Types Of Bankruptcy Filings?

Essentially there are really only three types of bankruptcy filings for individuals in New Jersey, as well as nationally: Chapter 7, Chapter 13, and the niche individual Chapter 11 filing.

Chapter 7 is a complete liquidation wherein the debtor submits their petition and their assets to a trustee who will sell off any non-exempt assets. Then, they pay the creditors what they can, and forgive much of the rest of the debt.

Often the assets will be within exempt amounts they are allowed to keep under the bankruptcy code and there will not be anything for the Chapter 7 trustee to liquidate, resulting in a no asset case. Chapter 7 is far more drastic and dramatic than 11 or 13, which are better suited to debtors with incomes who wish to keep their assets or property.

Chapter 13 is a personal financial reorganization case where a debtor who qualifies then commits to a repayment plan. Over the next three to five years they then make monthly payments towards that plan to a Chapter 13 trustee who reimburses the creditors. Recently, the Chapter 13 debt eligibility limit was raised to $2.7 million without any distinction as to what debts are secured and unsecured, making it more accessible.

Chapter 11, on the other hand, is for individuals who normally would not qualify for a Chapter 13 case but wish to reorganize their debts without risking their assets. Many Chapter 11 debtors will even seek to file a Chapter 13 bankruptcy as soon as they fall within the applicable debt limit, though there are advantages to filing individually under Chapter 11.

After all, Chapter 11 bankruptcy only requires the filing of a proposed plan of organization where creditors vote on the plan, whereas in Chapter 13, creditors and the Chapter 13 trustee can object to the plan. In addition, the timeframe for repayment in Chapter 11 bankruptcy can be extended beyond the five-year limit imposed on Chapter 13 filings.

What Are The Criteria Or Eligibility Requirements For An Individual To File Chapter 11 Bankruptcy In New Jersey?

One of the main advantages of Chapter 11 bankruptcy is that there are no debt limitations. Unlike Chapter 13 where you cannot have too much debt or you will not be able to file (currently $2.75 million), there is no limit to how much debt you can have before filing for Chapter 11 bankruptcy.

What Are The Key Steps Involved In The Process Of Filing For Individual Chapter 11 Bankruptcy In New Jersey?

Similar to both Chapter 13 and Chapter 7 cases, any individual Chapter 11 debtor must first complete a credit counseling course and have a certificate of credit counseling to proceed with their case. Otherwise, the case could be administratively dismissed.

Once the credit counseling course has been completed, the debtor has 180 days to file the case itself. Just as in the other bankruptcy chapters, individual Chapter 11 debtors must prepare a petition with the complete disclosure of all assets and liabilities, including potential claims that may be unliquidated at the time.

In addition, in Chapter 11 bankruptcy, the debtor normally has between 120 to 180 days of filing to make a disclosure statement indicating the full extent of their financial affairs that resulted in their filing of bankruptcy and a proposed plan of reorganization.

Does The Automatic Stay Provision Protect Individuals In New Jersey During Chapter 11 Bankruptcy?

The automatic stay applies to all bankruptcy Chapters, including Chapter 11. Upon filing your case, the automatic stay comes into effect. It stops creditors from coming after you or taking actions against you, including filing lawsuits and repossession or possession of the property. It also includes starting or continuing a foreclosure action to reacquire a title to residential or commercial property owned by the debtor.

What Are The Other Responsibilities Of An Individual Debtor During The Chapter 11 Bankruptcy In New Jersey?

The first responsibility of the debtor is to file a complete and accurate Chapter 11 petition, with full and honest disclosure of assets, liabilities, income, and a statement of financial affairs. Once that case is filed, the United States Trustee’s Office, which administers all Chapter 11 cases, will schedule an initial debtor interview (IDI).

Once the individual case is filed, unlike in Chapter 13, a debtor must open what is called a “debtor in possession” bank account. These show all deposits and expenditures that occur during their case.

In addition, they must file an initial operating report at the start of the case, and monthly progress operating reports as it continues. These detail their income, expenditures, sale of assets, and their ordinary and necessary living expenses and expenditures.

Once the debtor is in the case, they will be obligated to propose, and attempt, a plan of reorganization, which must be in good faith and comply in full with the bankruptcy code’s confirmation requirements. The plan itself will then be sent to creditors who have an opportunity to review the plan and interpose objections if they feel they are not being treated properly under the bankruptcy code.

These steps can all be quite delicate and complicated and are best attempted with the advice and guidance of an experienced and qualified Chapter 11 bankruptcy attorney.

For more information on Filing An Individual Chapter 11 Bankruptcy In NJ, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (908) 373-8500 today.

Michael McLaughlin, Esq.

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