Chapter 11 Bankruptcy Eligibility

Is Your Massachusetts Small Business Eligible For Chapter 11 Bankruptcy? Find Out Now.

Chapter 11 Eligibility

On the other hand, almost anyone can file bankruptcy under Chapter 11. Individuals, corporations, partnerships, joint ventures, and limited liability companies are all eligible to be Chapter 11 debtors. There are no debt or income requirements or limitations for filing bankruptcy under Chapter 11.

Appointment of a Trustee

Whether a bankruptcy trustee will be appointed in your case differs in Chapter 11 and Chapter 13 bankruptcy. In Chapter 11, appointment of a trustee is the exception rather than the rule. The bankruptcy court may appoint a Chapter 11 trustee, but only if there is cause, such as gross mismanagement, or fraud.

In Chapter 13, a trustee is always appointed. In most cases, the role of the Chapter 13 trustee is relatively limited. Chapter 13 trustees review the proposed plan and other documents and make recommendations to the bankruptcy court on how to proceed. Chapter 13 trustees are also responsible for collecting plan payments and distributing the proceeds to creditors. If you fail to make required plan payments, the Chapter 13 trustee (or creditors) can ask the court to dismiss the case or convert it to a Chapter 7 liquidation.

Chapter 11 Proceedings: Pros and Cons

A big disadvantage to Chapter 11 is that the proceedings can be complex and expensive. However, there are special provisions which streamline and expedite Chapter 11 cases involving “small business debtors.” (For a list of these streamlined procedures, see Chapter 11 Bankruptcy for Small Business Owners.

For these purposes a “small business debtor” is a person or entity who:

  • is engaged in business or other commercial activities, and
  • owes no more than $2,490,925 in total debt (excluding obligations owed to insiders such as family members of the business owner).

An advantage of Chapter 11, if you can meet all of the statutory requirements, is that there is no set limit on a plan’s duration. Chapter 11 plans typically provide for debtors to make payments to creditors over a period of three to five years. The bankruptcy court can confirm a Chapter 11 plan with a longer term, however, if you need more time to make required payments. Small business debtors with real property mortgages or equipment loans, for example, often need extended payment terms.