Individual Reorganization

Under the U.S. Bankruptcy Code, an individual cannot file for Chapter 13 if their total combined secured and unsecured debt surpasses the prescribed limits. These high-debt individuals, such as professionals or business owners, may instead file for Chapter 11, often using the streamlined provisions of Subchapter V. Subchapter V was designed to simplify the reorganization process for small business debtors and high-debt individuals engaged in commercial activities.

Eligibility hinges primarily on the debt level, stable income, and the individual's capacity to propose a viable repayment plan. An individual generally qualifies when their total debts exceed the Chapter 13 limits and they meet the Subchapter V criteria, including not being a publicly traded entity and having a significant portion of debt from commercial or business activities.

To formally initiate the Chapter 11 case, the debtor must prepare and file a set of comprehensive documents with the court. These materials demonstrate the debtor’s financial position and support their intention to reorganize debts rather than liquidate assets. The necessary filings include the formal petition, detailed schedules of all assets and liabilities, a statement of financial affairs, and a current list of all creditors and debts, along with a preliminary draft of a proposed reorganization plan.

Upon the successful filing of the petition, the court immediately issues an automatic stay, halting nearly all collection efforts, lawsuits, and foreclosure actions against the debtor. This protection provides the individual with necessary breathing room to focus on reorganization. Following the filing, a status conference is typically scheduled within 60 days to assess the debtor’s readiness and progress toward developing a plan.

The debtor holds the exclusive right to file a reorganization plan, which must be submitted within 90 days of the case commencement. The crucial plan must detail how the debtor intends to allocate disposable income over a three to five-year period, ensure fair treatment for all creditors, and prove its financial feasibility based on actual income and assets. If the plan is determined to be fair and feasible, the court has the power to confirm it, sometimes overriding objections through a "cramdown."

A Subchapter V trustee is appointed by the court to play a facilitative and oversight role throughout the case, primarily working to monitor the debtor's finances and mediate negotiations with creditors. Unlike trustees in standard Chapter 11 cases, the Subchapter V trustee generally does not take over the debtor’s operations, allowing the individual to remain in possession of their assets. The trustee's main goal is to help the parties reach a consensual and confirmable reorganization plan.

A key advantage of filing for individual Chapter 11 is the absence of a debt limit, making it a viable option for those exceeding Chapter 13's thresholds. The process allows the debtor to retain key assets during the proceeding and provides an extended time frame—typically three to five years—for the structured repayment of debts. Furthermore, under Subchapter V, debtors gain the ability to restructure complex secured debts, often benefiting from a streamlined legal process that reduces administrative burdens.

Despite the benefits, individual reorganization in New York involves complex documentation and strict legal requirements, demanding precision in all financial filings. Debtors must accept years of ongoing court supervision while the repayment plan is in effect, and they must fully disclose personal and business financial information. There is always the inherent risk of plan rejection if creditors object or if the court determines the proposed repayment is not feasible, which can lead to case dismissal.