Chapter 11 Bankruptcy vs Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a personal reorganization bankruptcy that works well for income-earning individuals. Businesses tend to reorganize under Chapter 11 bankruptcy. Find out if you should file for Chapter 13 bankruptcy or Chapter 11 bankruptcy to get rid of your debt.

By , Attorney

Both Chapters 11 and 13 bankruptcy provide debt reorganization solutions for people struggling financially. Chapter 11 bankruptcy works well for businesses and individuals whose debt exceeds the Chapter 13 bankruptcy limits. Chapter 13 is often the better choice for individuals and sole proprietors.

Although a business can't file for Chapter 13 bankruptcy, a business owner can, and sometimes an owner's personal debt relief can benefit the owner's business. Learn more about bankruptcy options for struggling small businesses.



What Is Chapter 11 Bankruptcy?

Chapter 11 allows debtors to reorganize their finances while keeping assets. Reorganization can involve negotiating balances on secured debt, lowering payments, wiping out balances, and more.

Both businesses and individuals can file for Chapter 11 bankruptcy. Once started, most collection efforts will stop due to bankruptcy's automatic stay provision. In a traditional Chapter 11 proceeding, a bankruptcy trustee isn't appointed to oversee the case. Instead, the debtor handles most duties handled by a trustee in other chapters.

You'll create a plan of reorganization explaining how you will repay your debt. Unless your case qualifies as a small business case, the plan must be voted on by your creditors and confirmed by the court for it to go forward. If a small business case or individual case qualifies under the streamlined Subdivision V approach, your case will be appointed a trustee, and it will proceed more like a Chapter 13 matter.

Learn more about the Chapter 11 plan of reorganization.

In a business filing, your dischargeable debt (debt that you are no longer responsible for) will be erased (discharged) once the court confirms your plan. However, you must still comply with any terms set forth by the plan itself. The discharge wipes out all debt that predates the filing immediately upon confirmation in a business filing.

An individual filing for Chapter 11 won't get the discharge until after making all plan payments. Also, an individual cannot wipe out some types of debt, such as domestic support obligations, some taxes, and liabilities incurred through fraud.

Learn more about how Chapter 11 bankruptcy works.

What Is Chapter 13 Bankruptcy?

In Chapter 13 bankruptcy, you keep your property in exchange for paying creditors your disposable income through a three- to five-year repayment plan. Dischargeable debts get erased upon successful plan completion. Many Chapter 13 debtors end up repaying only a small portion of their unsecured debt through the plan; however, it isn't always the case. The amount of your plan payment will largely depend on your income and the value of your assets.

Learn more about how Chapter 13 bankruptcy works.

To file for Chapter 13, your unsecured debts must be less than $465,275 and your secured debts less than $1,395,875 (for cases filed between April 1, 2022, and March 31, 2025). Only individuals or sole proprietors can file for Chapter 13 bankruptcy. Corporations and limited liability companies are not eligible because they are considered separate legal entities. Once filed, the automatic stay will stop any collection efforts against the filer. Also, a trustee will be appointed to oversee your case.

Read about other eligibility requirements for Chapter 13.

Why Should I Choose Chapter 11 Over Chapter 13?

Chapter 11 typically makes sense for businesses or individuals whose debt levels exceed those allowed in Chapter 13 bankruptcy. Some small business owners and individuals can take advantage of streamlined Chapter 11 procedures found under Subdivision V.

Find out more in Chapter 11 Bankruptcy for Small Business Owners or When Is Chapter 11 Bankruptcy a Good Option for Your Small Business?

Why Should I Choose Chapter 13 Over Chapter 11?

Some of the advantages of filing for Chapter 13 bankruptcy over Chapter 11 include:

Chapter 13 Bankruptcy Protects Codebtors; Chapter 11 Doesn't

Chapter 13's automatic stay protection extends to codebtors. So if you and another person are both liable for an account, loan, or other debt, creditors cannot pursue your codebtor for payment during your bankruptcy case. While collection can resume once your Chapter 13 case is over, this will at least give codebtors a reprieve from collection actions for three to five years. Chapter 11 does not provide the same protection to codebtors.

Get details on the codebtor stay in Chapter 13.

Chapter 13 Is Cheaper Than Chapter 11

Chapter 13 is usually less expensive than Chapter 11. This is because:

  • the filing fee for Chapter 13 is less costly, and
  • the Chapter 13 process requires less work.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

One way to keep track of your research is to use the bankruptcy forms as an outline. You'll find links to related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.


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Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

Updated April 22, 2022

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