Filing for a Chapter 11 bankruptcy does not immediately eliminate your credit card debt. Instead, it allows you to put the debt collections on hold for a period of time until the court has officially declared the bankruptcy. Filing for a Chapter 11 bankruptcy have some upfront costs including filing fee, U.S. Trustee fees and the fees to mail the reorganization plan.
Once you have filed for a bankruptcy, you are given 120 days to come up with a reorganization plan. You can extend this period to up to 180 days by appealing to the court if you need more time to prepare the reorganization plan. During this period, you can negotiate with your creditors to create a reorganization plan. The creditors will be willing to negotiate with you because they don’t want you to file for a Chapter 7 bankruptcy and get nothing in the end.
The reorganization plan is a custom repayment plan on how you are going to put your finances in order and repay back the debt. You are to propose a plan that will protect your assets and allow you to use your disposable income to repay the debt.
At least one half of your creditors in each class of claims must first accept the proposed reorganization plan before the court can approve it. It can be hard to negotiate with the creditor sometimes and you will need to prove to the judge that the proposed plan is reasonable in order to get the reorganization plan approved. If the court did not approve any of the plan you submit within 180 days, your creditors will submit the repayment plan on your behalf.
After the plan gets approved, it is important that you make payment according to the outlined schedule. Usually, you will have to make payment for a number of years to become fully acquitted of the credit card debts. You will owe the outstanding amount of debt if you fail to follow up on payment on the court approved repayment plan.
The court may also convert your case to a chapter 7 bankruptcy where they auction off your assets to pay back the creditors you owe. If you successfully pay off your debt in the court approved repayment plan, you will be discharged from the rest of your debts.
Chapter 11 bankruptcy is ideal for an individual who have a disposable income that is too high for them to qualify for other types of bankruptcies. Prior to filing it, you should consider other alternatives. You might also want to come up with a good reorganization plan first before filing it otherwise it will not help you to restructure your finance as you have hoped in your expectation.