What is a Chapter 11 Discharge and When Does it Happen?
Although the main purpose of Chapter 11 bankruptcy is to reorganize a person’s or company’s debts, there are times when certain debts can be discharged or eliminated.
During Chapter 11 bankruptcy, most of a business owner’s debts are not discharged or eliminated. Instead, it is meant to reorganize a business’s debts into a repayment plan. However, there are times when a business owner can have their business’s debts discharged or eliminated when filing Chapter 11 bankruptcy. Discharging debts is quite common in Chapter 11, and if you are considering this type of bankruptcy, it is important to know which debts may be eligible for discharge. Below, our West Palm Beach bankruptcy lawyer explains further.
What Debts are Dischargeable in Chapter 11 Bankruptcy?
Unlike in other types of bankruptcy proceedings, there are some exceptions to dischargeability under Chapter 11. Instead, these proceedings start with the presumption that a business’s debts can typically be discharged before exceptions are established for discharges that are more circumstantial rather than being tied to specific types of debt. Due to this, there are many types of debts that can be discharged in Chapter 11, including:
- Credit card debt
- Loans
- Lines of credit
- Industrial or commercial real estate financing
- Credit extended by a business’s suppliers and vendors
- Financing for commercial vehicles
- Financing for equipment
In most cases, the above categories will cover the majority of, if not all of, the business’s debts the company needs to discharge or reorganize in order to return to a financially stable position. Due to this, filing for Chapter 11 bankruptcy is a good alternative for companies in many different scenarios.
What Debts Cannot Be Discharged in Chapter 11 Bankruptcy?
While there are many dischargeable debts in Chapter 11 bankruptcy, there are some debts that cannot be discharged. These include:
- Debts owed to the federal government, such as income tax debt
- Debt obtained through misrepresentation or false pretenses
- Debt obtained through fraud
Creditors can also challenge a discharge. For example, while credit card debt is dischargeable in Chapter 11, the creditor may argue that important records were forged, and so, the business is still liable for the debt.
When Can Debt Be Discharged in Chapter 11 Bankruptcy?
As in most bankruptcy cases, any dischargeable debt is discharged at the end of the Chapter 11 process. This typically means that the borrower has met all of the terms under the repayment plan and all other conditions have been followed. Repayment plans are generally shorter in Chapter 11 bankruptcies than they are in Chapter 13. Most plans extend several months to many years. After that time, the court may discharge any remaining debt.
Our Bankruptcy Lawyer in West Palm Beach Can Answer Your Questions
If you need help repaying your debts, but you also want to protect your business, our West Palm Beach bankruptcy lawyer, Brian K. McMahon, can help. Our experienced attorney can guide you through the process, help you draft a plan, and ensure you receive the best possible outcome. Call us today at (561) 658-1789 or contact us online to schedule a consultation and to get the information you need.