Since the housing bubble that is deflating or exploding (depending on your perspective), it is becoming more and more common for debtors seeking to reorganize to be seeking bankruptcy protection. To be a chapter 13 debtor your debt cannot exceed a certain amount. As of this posting, a chapter 13 debtor cannot have more than $366,900 in unsecured debt, or have more than $1,010,650 in unsecured debt. If a debtor wants to reorganize and has higher debt, chapter 13 is not an option. With that said there are some facts you need to know about chapter 11.

It’s more expensive: the filing fee for a chapter 11 petition is (as of this writing) $1,079. Legal fees and expenses should be expected to be higher (if not significantly so) and most experienced bankruptcy attorneys will quote you a retainer based on the level of skill required, and the level of complexity anticipated in the case. In addition to those expenses, there are quarterly fees payable to the US Trustee.

In addition to the legal fees and costs, there are the tasks associated with being a chapter 11 debtor. Debtors need to prepare and file monthly operating reports with the US Trustee. If debtors are not already doing so, this means getting into the habit of keeping track of every penny of income, and every penny of expenditures.

It is an urban myth (or depending on where you are, suburban myth) that you can file under chapter 13 if you are over the debt limits. You either have to face chapter 11 with a brave face and a good attorney, or you have to accept the fact that you may not be able to afford the property you are trying to keep.

If you think you might be “in the ball park” of the debt limits, you need to get all of your documents in order. This includes bills, statements, as well as other potential claims, such as pending lawsuits. Let bankruptcy counsel review it and determine whether you can get into a chapter 13, versus a chapter 11. The sooner you can know which chapter or chapters you can proceed under, the sooner you can prepare. The time to do that is now, not on the eve of a foreclosure auction.

Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.