The main difference between Chapter 11 and Chapter 13 is that a Chapter 13 bankruptcy requires that the debtor pay his or her debts within five years. On the other hand, Chapter 11 allows the filer to extend the five-year period unlike Chapter 13.
Another difference is how much the Debtor has to pay creditors. In a Chapter 13 case, the Debtor will have to pay debts that qualify as Priority Debts (such as certain taxes and family support debts) 100%, but will not necessarily have to pay unsecured creditors in full. The Debtor is required to submit all of his/her disposable income for a period of 3-5 years.
Whatever is left over after payment of priority expenses and expenses of administration (attorneys’ fees and trustee fees) is paid on a pro-rata basis to unsecured creditors. In many Chapter 13 cases, the unsecured creditors will receive little to no payments on their claims.
In a standard Chapter 11 case, something called the “Absolute Priority Rule” requires that if the Debtor (or the Debtor’s owners) want to retain property of the estate, they may be required to pay unsecured creditors 100% of their claims over time. The time period may be more than five years if the Court finds that to be reasonable.
In some cases, Debtors may be able to avoid that requirement by contributing new value to the estate, but the new value has to be substantial enough to warrant the Debtor not having to pay the unsecured creditors while retaining valuable assets.
About the Finkel Law Group
Finkel Law Group, with offices in San Francisco and Oakland, has more than 40 of experience assisting our clients navigate federal bankruptcy laws and state insolvency statutes. Our attorneys have the experience and expertise needed to help you and your management team successfully complete the liquidation or reorganization of your corporation, partnership or limited liability company.
When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with the bankruptcy and reorganization issues confronting your company please contact us at(415) 252-9600,(510) 344-6601, orinfo@finkellawgroup.comto speak with one of our attorneys about your matter for a cost-free consultation.
FAQs
With a chapter 13 bankruptcy the creditor is required to accept the plan that is drafted as long as it meets existing legal bankruptcy standards, but with chapter 11 the creditors can vote to determine whether or not the plan will be accepted.
Is it better to file a Chapter 11 or 13? ›
While Chapter 11 filings can be filed by nearly anyone, Chapter 13 filings are reserved for those with a steady stream of income and who meet debt limit thresholds. These filings allow individuals to pay down their debts over time using a proposed payment plan.
Does Chapter 11 wipe out all debt? ›
While Chapter 11 bankruptcy does not typically clear debts, it may allow you to retain assets and to operate a business if you have one. When you file a petition for Chapter 11 bankruptcy, your creditors must suspend attempts to collect the debt and repossess or foreclose on any property.
Does Chapter 13 wipe out all debt? ›
Whether it's a Chapter 13 or 7 or 11, no bankruptcy filing eliminates all debts. Child support and alimony payments aren't dischargeable, nor are student loans and most taxes. But bankruptcy can eliminate many other debts, though it will likely make it harder for you to borrow in the future.
How is Chapter 11 bankruptcy different from chapter 7 and 13? ›
Chapter 11 is the chapter used by large businesses to reorganize their debts and continue operating. Corporations, partnerships, and limited liability companies cannot use chapter 13 to reorganize and must cease business operations if a chapter 7 bankruptcy is filed.
What is the debt limit for Chapter 13? ›
Chapter 13 Eligibility
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's combined total secured and unsecured debts are less than $2,750,000 as of the date of filing for bankruptcy relief. 11 U.S.C. § 109(e).
What are the downsides of Chapter 11? ›
Some Loss of Control Over Business Operations
This generally means that activities like selling, purchasing, refinancing, or leasing major capital assets require court approval.
Do you lose assets in Chapter 11? ›
The chapter 11 bankruptcy case of a corporation (corporation as debtor) does not put the personal assets of the stockholders at risk other than the value of their investment in the company's stock.
Does equity get wiped out in Chapter 11? ›
The short answer is that most of the time, the stock of a company in Chapter 11 becomes worthless and shareholders get completely wiped out.
Who gets paid first in Chapter 11? ›
Secured creditors like banks are going to get paid first. This is because their credit is secured by assets—typically ones that your business controls. Your plan and the courts may consider how integral the assets are that secure your loans to determine which secured creditors get paid first though.
When your Chapter 13 case is dismissed, you are often in a far worse financial position. That's because the interest on your unpaid debts has continued to mount as you've struggled to make payments. And once you're out of bankruptcy protection, you have more debt than ever.
Do you pay 100% in a Chapter 13? ›
This is known as a percentage plan and can vary from 1% - 99%. A 100% plan indicates that the petitioner does not qualify for debt reduction based on their income and ability to pay. This Chapter 13 plan structures 100% of that client's debt to be paid back through the repayment process.
What is the average monthly payment for Chapter 13? ›
A Chapter 13 petition for bankruptcy will likely necessitate a $500 to $600 monthly payment, especially for debtors paying at least one automobile through the payment plan. However, since the bankruptcy court will consider a large number of factors, this estimate could vary greatly.
Which one is better, Chapter 7 or 13? ›
Generally, Chapter 7 is more appropriate for simple cases while Chapter 13 for more complicated bankruptcies. Or somewhat more accurately, Chapter 13 can give you more power over and flexibility with certain kinds of creditors, and if you have non-exempt assets.
Is Chapter 13 worth it? ›
If you have a solid job or way to make money, but simply can't afford to fully pay what you owe, Chapter 13 may be a good option. It lets you maintain more control over your finances and assets than you would with a Chapter 7 bankruptcy, which forces you to sell most of your assets.
What is the most common bankruptcy chapter? ›
Also known as liquidation or straight bankruptcy, Chapter 7 is the most common type of bankruptcy for individuals.
What are the disadvantages of Chapter 13? ›
Cons of Filing Chapter 13 Bankruptcy
Job loss, medical issues, and added expenses all strain the plan. 2. Certain Debts Remain: Common protected debts like most student loans, alimony, and child support can't be discharged in Chapter 13. (These debts are also not discharged in a Chapter 7 case).
How often is Chapter 13 successful? ›
The study found that just over 35% of Chapter 13 cases filed were successful and resulted in the repayment plan being completed.
Why do most Chapter 13 bankruptcies fail? ›
In summary, a Chapter 13 bankruptcy can fail for lots of reasons. These could be inadequate repayment plans, failure to make plan payments, changes in your financial circ*mstances, failure to do those required courses, filing too soon after previous bankruptcy, and filing without legal representation.
How often is a Chapter 11 successful? ›
In some cases. But don't get your hopes up. Only about 10% of Chapter 11 filings result in success; far more often, they end up in Chapter 7 straight bankruptcy, in which the company closes and its assets are sold to pay back secured creditors.
