The Supreme Court says individuals, not just businesses, are entitled to file for reorganization under Chapter 11 of the Bankruptcy Code.
The court, in an 8-1 ruling Thursday, extended the option of Chapter 11 to some individuals who before Thursday had faced only the prospect of liquidating under Chapter 7 if they chose to declare bankruptcy.The court reversed a ruling of the 8th U.S. Circuit Court of Appeals that Sheldon Toibb of Missouri was not entitled to file for reorganization under Chapter 11 because he was not engaged in a continuous business.
Chapter 11 gives a business, or now an individual, more flexibility in deciding how to pay off debts and in holding onto certain assets. Chapter 7 allows an individual to retain custody of his home, but little else, while a bankruptcy judge disperses belongings to creditors.
The court rejected arguments its ruling would "flood the bankruptcy courts" with individual plans of reorganization, noting that the added expense and complexity of filing under Chapter 11 "likely will dissuade most consumer debtors."