Chapter 11 vs Chapter 13

Corporate Finance Tutorials

Difference Between Chapter 11 vs Chapter 13

Under the Bankruptcy Code, the Chapter 11 vs Chapter 13 are a legal procedure which deals with the debt problems and the payment obligations of the company in case the company decides to declare themselves bankrupt. The Bankruptcy code also is a helpful tool for individuals and who are unable to pay off their debts and gives them an opportunity to start afresh by liquidating the assets of the company and pay off their debts or by proposing a complete restructuring of the organization.

What is Chapter 11 Bankruptcy?

Chapter 11 is most commonly used by businesses and small businesses. The chapter allows the business to draft a plan to help keep the business active while it is able to pay off its debt. The filing of a petition can be voluntary or involuntary. A debtor usually has a time frame of generally three to four months to come up with a reorganization plan. However, the timeline can be extended up to 18 months if there is a reason which is justified behind it. The trustee is the one responsible for all the timeframe approvals.

What is Chapter 13 Bankruptcy?

This chapter 13 of the bankruptcy code is pertaining to less about the elimination of debt and more about reorganization the individual’s finance. Chapter 13 required the debtor to make a monthly payment to a chapter 13 trustee for a period of 36 months to 60 months. Chapter 13 allows a debtor the length of the plan to pay back past due amounts owed on houses, cars and other loans that have a significant amount of collateral.

Chapter 11 vs chapter 13 allow the debtors of the business to propose a new restructuring plan and modify their payment terms which helps the company to stay in the business.

Chapter 11 vs Chapter 13 Infographics

Here we provide you with the top 10 difference between Chapter 11 vs Chapter 13

Chapter 11 vs Chapter 13 – Key Difference

The key difference between Chapter 11 vs Chapter 13 are as follows –

Under Chapter 11 there are no debt limits however under chapter 13 there is a debt limit cap
A chapter 11 debtor can take months to file a plan and make payments. However, under chapter 13 a payment plan must be surrender within 15 days of filing petition
Under Chapter 11 the debtor has more freedom and as no trustee is appointed in comparison to Chapter 13
Under Chapter 13 the petitioner can retain his property without paying the unsecured creditors. However, under Chapter 11 allows the creditor to object who have not been paid in full
Under chapter 13 debtor can restructure many types of property by only paying the value of the collateral but in chapter 11 a debtor may be restricted to do cramming down by a particular class of creditors

Chapter 11 vs Chapter 13 Head to Head Difference

Let’s now look at the head to head difference between Chapter 11 vs Chapter 13

Basis – Chapter 11 vs Chapter 13	Chapter 11	Chapter 13
Eligibility	In order to file a petition under Chapter 11, the debtor must be a corporate, partnerships, Limited Liability Partnerships or individuals	Under chapter 13 in order to qualify as a debtor, the debtor must be an individual or a husband and wife filing jointly any other party need to file under chapter 11 of the bankruptcy code
Eligibility Two	When filing for chapter 11 one will be considered as a small business debtor and the debt must not exceed $2,490,925	You are eligible to file for Chapter 13 as long as you haven’t filed for chapter 7 for the past 4 years or Chapter 13 for the past 2 years
Process Cost	This chapter is more expensive than Chapter 13	This chapter is generally less expensive than Chapter 11
Process time	The process of this chapter is more and lengthy	The process of this chapter is less and short
Financing	Under Chapter 11 a debtor may incur unsecured debt in the ordinary course of business without the approval of the court	Under Chapter 13 a debtor cannot incur any new debt without the consent of the court or the trustee
Payment Plans	Chapter 11 allows no restriction or a mandatory deadline to file a plan under this chapter and payments do not begin until the plan has been approved and confirmed by the court	A plan under Chapter 13 must be filed within the time frame of 14 days of filling for the petition. Payment plan typically starts after 30 days of filling the plan
Asset Surrender	In Chapter 11 you need to create a plan on how you are going to repay your debt. Unless the case is of a small business case it should be voted by the creditors and confirmed by the court	In Chapter 13 the business needs to keep the property or the assets in exchange for paying the creditors through the disposable income
Complexity	Chapter 11 is more complex than 13 and Chapter 11 bankruptcy may be useful for someone who does not qualify for Chapter 13	Chapter 13 is much simpler and time-saving process when compared to Chapter 11
Disposable Income	There is no such requirement under this chapter	In Chapter 13 debtors are required to use all their disposable income to repay the creditors
Creditors	Creditors can reject a proposed repayment plan	Under chapter 13 the creditors generally must accept the repayment plan

The bankruptcy code comes handy and is very necessary for businesses it is intended primarily for the reorganization of the business where there are heavy debt burdens. Declaring for bankruptcy helps businesses to resolve their financial difficulties and situations and helps in rebuilding their credit.