Bond Law Office
Chapter 11 vs. Chapter 12 Bankruptcy
According to data from Statista, there were 21,655 business bankruptcy cases filed nationwide in the United States in 2020. For small businesses experiencing financial adversity, Chapter 11 or Chapter 12 bankruptcy can help you restructure your business affairs, reduce or eliminate your debt, and achieve financial relief while keeping your business afloat. An experienced Arkansas bankruptcy attorney can help evaluate your unique financial situation to determine which bankruptcy chapter is right for you.
At Bond Law Office, we have the resources and experience to assist and guide clients through the complexities of bankruptcy proceedings. Our attorneys are available to discuss your unique financial situation and enlighten you about your available options to reorganize your business. Whether you are filing for Chapter 11 or Chapter 12 bankruptcy, our team can provide you with the comprehensive legal counsel, support, and reliable advocacy you need to navigate the complicated procedures surrounding each option. We're proud to serve clients throughout Fayetteville, Fort Smith, Harrison, Mena, Waldron, and the Arkansas River Valley area.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy, also known as "reorganization" bankruptcy, is designed to help businesses restructure their affairs, debts, and assets. In a Chapter 11 bankruptcy case, the debtor (business or corporation) proposes a plan of reorganization. The reorganization plan specifies how the debtor proposes to settle each of their debts or creditors.
Additionally, the proposed reorganization plan enables businesses to settle their debts using future revenue while keeping the business afloat. Creditors will be categorized into priority debt creditors, secured debt creditors, and unsecured debt creditors. Both the court and the creditor must approve the proposed reorganization plan. Unfortunately, filing for Chapter 11 is time-consuming and expensive.
Who Qualifies for Chapter 11?
Chapter 11 bankruptcy is considered to work best with LLCs and partnerships. Nonetheless, you can file for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code if:
- You are a small business owner who needs time to restructure their finances and debts.
- Your secured debt or unsecured debt exceeds the limits of a Chapter 13 bankruptcy filing
When is Chapter 11 a Good Option?
Chapter 11 is a good option if:
- You're a large business or corporation
- You want to keep your business running while restructuring your affairs, assets, and debts
- You have more debt to restructure than allowed under Chapter 13 "debt limits"
An experienced attorney can help review your financial situation and determine if Chapter 11 is a good debt relief option to restructure your business.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy is a reorganization bankruptcy which is made available for family farmers and fishermen. This bankruptcy option allows family fishermen and family farmers to restructure their finances and avoid foreclosure or liquidation. Chapter 12 is quite similar to Chapter 13 bankruptcy. However, it provides additional benefits to debtors.
When you file for bankruptcy under Chapter 12 of the U.S. Bankruptcy Code, you are allowed to keep running your fishing or farming operations. You must propose a repayment plan, spread over three to five years, within 90 days of filing your bankruptcy petition. A court-appointed bankruptcy trustee will review your documents, monitor your operations, advise the court, and collect the repayment plan payments.
Who Qualifies for Chapter 12?
You may be eligible for Chapter 12 bankruptcy if you meet the following requirements:
- An individual (husband or wife) engaged in farming or commercial fishing operation
- A corporation or partnership engaged in farming or commercial fishing operation
- The total debts (secured and unsecured) must not exceed $10 million for farming operations or $1,924,550 for commercial fishing operations
- At least 50% of the total debts that are fixed in amount must be related to the farming operation
- At least 80% of the total debts that are fixed in amount must be related to the commercial fishing operation
- The corporation's stocks must not be publicly traded
When is Chapter 12 a Good Option?
Filing for Chapter 12 bankruptcy might be a good option if:
- You operate a farming or fishing business
- You plan to continue running your farming or fishing business
- You need more flexibility and control over the reorganization
An Arkansas bankruptcy attorney can evaluate your financial situation and determine whether Chapter 12 is the ideal option to reorganize your business.
Differences Between Chapter 11 & Chapter 12 Bankruptcy
Here are some of the major differences between Chapter 11 and Chapter 12 bankruptcy:
Debt Repayment – Chapter 12 allows debtors to cram down debts – pay the current market value of a property instead of the whole debt – on almost all secured debt. Conversely, in a Chapter 11 case, you will make all required payments in the reorganization plan until you get a discharge.
Type of Business – There are no restrictions on the type of business that can file for Chapter 11. In contrast, only farming and commercial fishing businesses can file for Chapter 12.
Bankruptcy Discharge – In a Chapter 11 case filed by LLC or corporation, the debtor receives a discharge when the reorganization plan is confirmed by the court. Conversely, in a Chapter 12 case, the debtor receives a discharge after completing all payments.
Bankruptcy Process – Filing for Chapter 11 is expensive and time-consuming. In contrast, Chapter 12 offers a quick, affordable, and predictable process for farmers and fishermen to reorganize their debts.
Flexibility – Chapter 12 offers farmers more repayment flexibility compared to Chapter 11 bankruptcy.
Debt Limits – To file for Chapter 11, your debts must not exceed $1,184,200 in secured debt and $394,725 in unsecured debt. Conversely, Chapter 12 has higher debt limits for secured and unsecured debts.
Hiring an Experienced Bankruptcy Attorney
Filing for small business bankruptcy in Arkansas involves many complex procedures. Determining your eligibility, filing a bankruptcy petition, and attending court proceedings can make the entire process exhausting. That’s why it is never advisable to navigate the complicated bankruptcy process all alone. When considering reorganizing your business through bankruptcy, consulting with an experienced bankruptcy attorney is crucial.
At Bond Law Office, we are committed to offering comprehensive legal guidance and reliable advocacy to clients in bankruptcy-related matters. As your counsel, we can review your financial situation and explore your available business bankruptcy options. Whether you are filing for Chapter 11 or Chapter 12 bankruptcy, our team will help you understand the benefits and drawbacks of each option, determine your eligibility, and guide you through every step involved from start to finish. We can guide you on your road towards financial recovery, help you avoid potential pitfalls, and set your business up for success.
Contact us today to schedule a one-on-one consultation. We proudly serve clients throughout Fayetteville, Fort Smith, Harrison, Mena, Waldron, and the Arkansas River Valley area.