The Mystery of Chapter 11

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What the hell is Chapter 11?  Just the name gives most people a headache.

OK, maybe not as much of a headache as if you work for a company that files

Chapter 11 bankruptcy, or, if a company that owes you money files under

Chapter 11.

Most Chapter 11 bankruptcies are filed by businesses that want to reorganize,

because, obviously, something bad happened.

Probably not as bad as sunk as this boat.

Generally, the bigger a business is, the more complex it is, and the more

involved the bankruptcy case will be.

But individuals can file Chapter 11 too!

This does not excite you?

Chapter 7, or straight, or liquidation bankruptcy, is what most people file, and

where many companies  which start in Chapter 11 end up.

In Michigan bankruptcy cases, rarely is anything liquidated; most people who

file do not lose any property to the Chapter 7 trustee.

Chapter 13 is a payment plan for individuals with regular income.  Corporations

cannot file Chapter 13 bankruptcy.

Companies that file Chapter 11 can get out of union contracts, and most other

contracts for that matter.  The court can re-write the terms of secured loans;

unsecured creditors, ones with no collateral, are lucky to get pennies on the

dollar.  As for those who own stock or bonds, well, check with your friends who

owned GM or Chrysler stock.

Individuals in Chapter 11 cannot get the terms of the first mortgage on their

residence changed, but, can get mortgages changed on any other real estate

they own.

This can save a person in the business of, say, renting houses or apartments.

That is the point of Chapter 11, to allow reorganization, a payment plan that

pays what is required, and keeps the business going.

So, you could own 8 Michigan houses that you rent.  They are all underwater,

that is, worth much less than what is owed on them.  Yet, you still have paying

tenants.

But you can see this is going nowhere, you owe a million dollars more than they

are worth all totaled.

Bingo!  Chapter 11 allows you to re-write every one of those

mortgages down to the value of the home, and even change the interest rate,

and how many years are left on the mortgage.

Do you have any questions about Chapter 11?

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One Response to The Mystery of Chapter 11

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