Both Chapter 11 and Chapter 13 bankruptcy may allow you to modify secured debt contracts, discharge certain unsecured debts that cannot be repaid over the term of the bankruptcy repayment plan, and to keep certain property needed to operate your business. There are some differences between the two bankruptcies, however, which are discussed below.
Chapter 13 bankruptcy
Chapter 13 bankruptcy allows individuals who owe less than $383,175 in unsecured debt and $1,149,525 in secured debt to restructure their unsecured debt obligations with a 3 or 5 year debt repayment plan. Unsecured debts include credit card debts, unsecured personal loans, and medical bills. Secured debt includes car payments, secured personal loans, and home mortgages. Persons with debt limits which exceed those listed will not qualify for Chapter 13 bankruptcy.
Individuals who are sole proprietors may also file Chapter 13 bankruptcy if they file their bankruptcy petition on their own, although many small businesses which are partnerships or corporations will have to file Chapter 11 bankruptcy.
If you file Chapter 13 bankruptcy the court will appoint a trustee to review your bankruptcy repayment plan and bankruptcy forms. The trustee will be responsible for repaying your creditors with proceeds from your plan for the duration of the plan.
Chapter 11 bankruptcy
Unlike Chapter 13 bankruptcy which is not available for corporations, partnerships, limited liability companies, and joint ventures, Chapter 11 bankruptcy allows each of these groups to restructure their debt obligations. Chapter 11 also does not impose an income or debt limitation on filers. Chapter 11 bankruptcy, however, is more expensive and time consuming and for this reason most sole proprietors choose Chapter 13 bankruptcy if possible.
Unlike Chapter 13 bankruptcy, the court generally only appoints a trustee for Chapter 11 bankruptcy cases if they believe the company or person needs assistance with management or if they suspect fraud.
Why do many people avoid Chapter 11 bankruptcy?
As mentioned above, Chapter 11 bankruptcy can be costly and time-consuming. For this reason Chapter 11 is generally used by large businesses who wish to restructure their debts and continue operating their businesses. Corporations, partnerships, and limited liability companies who do not choose Chapter 11 can file Chapter 7, but this chapter eliminates their ability to continue operations.
With that said, corporations and partnerships can benefit from filing Chapter 11 because it will allow them to restructure their debt payments over a 3 or 5 year period, or in some cases, with court approval, for longer terms.
Do I need a bankruptcy lawyer for Chapter 11 or Chapter 13 bankruptcy?
While debtors may be able to file Chapter 13 bankruptcy without legal help, Chapter 11 filers will definitely need help. Due to the complexity, however, many lawyers do not accept Chapter 11 cases, and Chapter 11 filers will need to find a specialty law firm who specializes in Chapter 11 bankruptcy.
If you choose to file Chapter 11 bankruptcy you should also be prepared to pay. The filing fee alone is $1,000, which is more than triple the cost for Chapter 7. Lawyers will also charge thousands of dollars for negotiations to construct the Chapter 11 reorganization plan.
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