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What Is Reorganization Under The Bankruptcy Code?

Robert J. Adams and Associates July 23, 2020

For reorganizations there are 2 main Chapters available: Chapter 13 and Chapter 11. Only an individual may file a Chapter 13. High amounts of debt can push an individual into Chapter 11. Corporations and partnerships must file Chapter 11, although there is a provision for a small business Chapter 11 with slightly different procedures from those of a giant corporation.

Any reorganization offers the ability to get rid of unwanted property or leases. Certain debts can be paid more advantageously such as where there’s a co-signer that needs to be protected or an asset needs to be paid off quickly to allow the asset to be kept.


Any small business can experience a slowing of income or go through an event that devastates normal operations. Reorganizations are allowed when a company can show it still has good prospects for income but just needs help with the current debt burden. There could be possible lawsuits, the threat of an IRS levy, bank garnishments, and the like. If the past problems could be put aside, the business benefits society by continuing to generate products and jobs.

Individual business owners are eligible to get Chapter 13 relief as long as their Secured debts are under $1,184,200 and their unsecured debts are under $394,725.

Chapter 13 may well be the best course of action.

  1. The filing of a Chapter 13 imposes the powerful Automatic Stay against all creditors including the IRS from taking any action to collect pre-filing debts. It provides a powerful immediate relief. The Automatic Stay also prevents threaten repossessions.

  2. The costs including the filing fee and lawyer’s fee are very reasonable; it is quite inexpensive to start and actually file a Chapter 13 compared to a Chapter 11;

  3. Individual business owners are generally not required to fill out the Means Test. The exception being if consumers debts (and home mortgages are considered consumer debts) are greater than the business debts.

  4. A Chapter 13 plan is in a much better position to cram down under valued secured property and impair unsecured debts. In other words, let’s say, a printing press is worth $10,000 with $15,000 debt it can be repaid at the value rather than the amount owed.

  5. A Chapter 13 allows you get rid of unwanted property. One can owe a great deal of money on a “junk” car or possibility an antiquated piece of machinery. The secured debt can be converted to an unsecured debt.

  6. If property has been recently repossessed it can be recovered upon filing the case. This most frequently happens with automobiles.

  7. The tax man may be at your door but in a Chapter 13 IRS and other tax debts can be paid over a long period of time.

  8. Frequently, impaired debts can be paid at a fraction of the amount due. Unlike impaired creditors in Chapter 11 to be discussed later, creditors do not vote on the Debtor’s plan. However, creditors and the Chapter 13 trustee can object to the proposed plan.

The individuals owning the business would list all assets and liabilities for themselves since the business does not have any separate debts. The plan must deal with all the debts.

The Chapter 13 client must complete schedules that show future income and expenses and the ability to handle to monthly Chapter 13 payments.

An example of a possible plan:

The owner of cab medallion has a current balance to the finance company of about $250,000 while cab medallions have a value of about $60,000 to $65,000. A Chapter 13 can be crafted to pay the value of the medallion over 3 to 5 years, maybe $1,500 per month, and drastically reduce the remaining debt. At the end of the 5 year Chapter 13 plan the client will own his medallion free and clear of all debts.

For more information on Chapter 13 Reorganization Of Small Business, a Complimentary consultation is your next best step. Get the information and legal answers you are seeking by calling today.