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Court denies bankruptcy in business reorganization

Any type of bankruptcy can be complex, for both individuals and businesses. For instance, a bankruptcy judge in another state recently reaffirmed his refusal to allow a couple involved in the mortgage business to file a Chapter 11 bankruptcy for the purpose of business reorganization. The couple sought debt relief from their many business obligations and purportedly wanted to set up a repayment plan for as many of their creditors as possible.

The judge had initially dismissed the couple's case in January. Now, with the agreement of all parties, he has ruled that the couple will not have permission to re-file their case. Creditors are free to pursue them outside of bankruptcy court.

When the couple initially filed their case along with their plan for reorganizing their finances, many creditors and United States bankruptcy officials objected. Some accused the couple of understating the value of their property by several million dollars, and another official accused the couple of making efforts to hide their assets. The couple also supposedly did not provide financial information when reasonably requested to do so. Bankruptcy, for the most part, involves federal law and is substantially the same in Massachusetts as it is in other parts of the country.

Although previous posts here have mentioned Chapter 13 and Chapter 7 bankruptcies, individuals like this couple may in some rare situations wish to file a Chapter 11 bankruptcy. While Chapter 11 is typically thought of as the type of bankruptcy big businesses use when they are going through financial struggles, in fact smaller businesses and even individuals with many and diverse assets may use Chapter 11 to reorganize their finances and thereby obtain debt relief.

On the other hand, the couple in this story apparently discovered that just like in the other types of bankruptcy, debtors who wish to get a fresh financial start through a Chapter 11 must be entirely open and honest about what they own and owe. They must also comply with many complicated provisions of bankruptcy law.

Source: The Maui News, "Judge: no bankruptcy protection for couple," March 15, 2013

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