Chapter 11 vs Chapter 13 Bankruptcy

Difference Between Chapter 11 and Chapter 13

Any individual or business can file chapter 11 of bankruptcy who requires time to make the debt manageable to pay in which the court will help the business to restructure its debts and liabilities; while chapter 13 bankruptcy provides for the adjustment of the debts that can be applied only by individuals with specific and stable income level where plan to repay the part or all of debts is made and its cannot exceed period of 5 years.

Under the Bankruptcy Code, Chapter 11 and Chapter 13 are a legal procedure that deals with the debt problems and the payment obligations of the company in case the company decides to declare themselves bankrupt. The bankruptcy code is also 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.

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What is Chapter 13 Bankruptcy?

Chapter 13 of the bankruptcy code is pertaining to less about the elimination of debt and more about the reorganization of 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.

Both chapters 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

Let’s see the top 10 differences between Chapter 11 vs Chapter 13 bankruptcy Bankruptcy.

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Key Difference

  • 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, 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 Comparative Table

BasisChapter 11Chapter 13
Eligibility In order to file a petition under Chapter 11, the debtor must be a corporate, partnerships, Limited Liability Partnerships or individualsUnder 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 TwoWhen filing for chapter 11 one will be considered as a small business debtor and the debt must not exceed $2,490,925You 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 CostThis chapter is more expensive than Chapter 13This chapter is generally less expensive than Chapter 11
Process TimeThe process of this chapter is more and lengthyThe process of this chapter is less and short
FinancingUnder Chapter 11 a debtor may incur unsecured debt in the ordinary course of business without the approval of the courtUnder Chapter 13 a debtor cannot incur any new debt without the consent of the court or the trustee
Payment PlansChapter 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 courtA 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 courtIn Chapter 13 the business needs to keep the property or the assets in exchange for paying the creditors through the disposable incomeDisposable IncomeDisposable income is an important mechanism to measure household incomes, and includes all sorts of income such as wages and salaries, retirement income, investment gains. In other words, it is the amount of money left after paying off all the direct taxes.read more
Complexity It is more complex than 13 and Chapter 11 bankruptcy may be useful for someone who does not qualify for Chapter 13Chapter 13 is a much simpler and time-saving process when compared to Chapter 11
Disposable IncomeThere is no such requirement under this chapterIn Chapter 13 debtors are required to use all their disposable income to repay the creditors
CreditorsCreditors can reject a proposed repayment planUnder 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 bankruptcy helps businesses to resolve their financial difficulties and situations and helps in rebuilding their credit.

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This has been a guide to Chapter 11 vs Chapter 13 Bankruptcy. Here we discuss the top difference between chapter 11 and chapter 13 along with infographics and comparative table. You may also have a look at the following articles –

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