People typically think “LA Dodgers Bankruptcy” or “Hostess Bankruptcy” or “General Motors Bankruptcy” when hearing the term Chapter 11 bankruptcy. But let a California Chapter 11 bankruptcy attorney explain, and you will find that Chapter 11 bankruptcy also applies to people, such as individuals who are sole proprietors, business owners, or wage earners with either secured debt above $1,149,525.00 or unsecured debt beyond $383,175.00. In such cases, chapter 13 is not available. For such individuals, a chapter 11 may be the only option.
Creditors usually get to vote in chapter 11 cases. However, that isn’t necessarily true in individual, non-corporate, chapter 11 cases.
The 9th Circuit Bankruptcy Appellate Panel decided in In Re Friedman (March 19, 2012), that the absolute priority rule does not apply in an individual chapter 11 case. Why the distinction? Well, 11 U.S.C. Section 1129(b)(2)(B)(ii) says that for a class of unsecured claimants that ”the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115, subject to the requirements of subsection (a)(14) of this section.”