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Chapter 11 bankruptcy is open to anyone and Chapter 13 bankruptcy is only for the individual. Read on to learn more!

In this article we look at some of the differences between Chapter 11 and Chapter 13 bankruptcy. In general terms both forms of bankruptcy allow the payment terms to be modified on debts that are secured, allow time for assets to be sold and allow for the elimination of obligations beyond the plan of the term.

Chapter 11 Bankruptcy

Almost anyone can file for Chapter 11 bankruptcy. There is no debt limit or income requirements. It is complex and usually the most costly so is often used by businesses. It allows business to remain open and operational as financial obligations are put into an organized plan that may include restructuring of the company and plans to reduce outgoings and expenses.

Chapter 13 Bankruptcy

This can only be filed on an individual basis who have a stable income. There are also debt limitations and these frequently change. Until April 2022, the limits are $419,275 in unsecured debt and $1,257,850 in secured debt. One big difference between Chapter 12 and Chapter 7 is Chapter 7 allows the elimination of the entire debt but some states do have limits. A repayment plan must be submitted explaining how the debts will be paid within three to five years. Usually, the filer may maintain some assets and payment is made via a trustee to creditors. Usually the terms have to be more favorable than they would be under other bankruptcy proceedings. 

COVID-19 Changes

The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed in late March of this year raised the Chapter 11 Subchapter 5 debt limit to $7,500,000, excluding federal emergency relief payments due to COVID-19 from “current monthly income” in Chapter 7 and Chapter 13 and “disposable income” in Chapter 13, and allowing Chapter 13 repayment plans to be extended to seven years but is only applicable to bankruptcies filed after March 27, 2020.

Source: https://www.investopedia.com/ask/answers/061815/what-are-differences-between-chapter-11-and-chapter-13-bankruptcy.asp

Bankruptcy can take varying amounts of time to complete but most Chapter 11 bankruptcy plans are complete within six months to two years. read on to learn more.

The fee for filing Chapter 11 bankruptcy is $1,717 but you can reckon on spending in excess of $10,000 on legal fees. Business owners who file for Chapter 11 bankruptcy will discover it is not a simple process.

Chapter 11 Versus Chapter 13

Both plans allow for business reorganization but with a Chapter 11 bankruptcy, a trustee does not always have to be appointed. If they are the review the plan or reorganization and make recommendations to the court, They also undertake the responsibility of collecting payment as well as the distribution of payments. To qualify for Chapter 13 your bills cannot be in excess of $1,184,200 in secured debt, and $394,725 in unsecured debt.

Businesses who are struggling need more time to get back on their feet. Chapter 11 bankruptcy can assist in this. it all starts with a the filing of a detailed petition. Chapter 7 progresses quickly, since creditors do not get to vote on the plan of reorganization. But Chapter 11 requires many court hearings and that is why it can take in excess of a year.

Source: https://www.debt.org/bankruptcy/chapter-11/

Chapter 11 bankruptcy commences with a petition filed to the court and with the assignation of a case number. The automatic stay then begins and a meeting is scheduled with all the creditors. Depending on the circumstances of the person filing for bankruptcy, a reorganization or liquidation are the primary options available. Read on to learn more.

Reorganization

Chapter 11 bankruptcy allows a filer to perform a reorganization of their financial affairs. The bankruptcy plan explains how debts will be met in the future and offers the filer the opportunity to renegotiate and restructure the manner of how they will pay back their creditors.

U.S. Bankruptcy Code rules state creditors are divided into certain classes:

• Creditors whose debts are secured by a property liens
• Unsecured priority claims are given priority for their unsecured debts to obtain money from the plan of repayment
• Unsecured claims that are non-priority are only met when the above classes have been satisfied

Sometimes, those who fall into the last category will assemble a creditors’ committee to try and obtain payment. Security holders with equity also have a claim on the company and may be paid at any time (or not paid at all.) Creditors may also object to the class they have been assigned by the filer. Only the filer can file a plan of reorganization in the first 120 days once the case has been filed with the U.S. Bankruptcy Court. In the case the filer is a small business they are allowed 180 days. After that, a creditor may file a plan for reorganization if the debtor is yet to have filed a plan or has filed a plan that does not meet the acceptance of its creditors.

The plan of reorganization must include a statement of written disclosure that gives information regarding the business affairs of the filer so creditors can make educated decisions regarding the reorganization plan. In the case of a small business the court may decide the plan includes all the relevant information saying the statement of disclosure will not be required.

Proof of claims will be filed by creditors. These claims will contain the money they are owed and it maintains their rights but they still have to provide proof to the courts explaining the validity of their claim. Those with valid claims vote on whether they will accept the plan of reorganization. Court approval and the vote of the creditors are mandatory. The approval of the court requires at least one of the classes of impaired claims will vote in favor of the bankruptcy reorganization plan. Bankruptcy Code rules say a total class of claims accept a plan if at least two-thirds of the creditors of the total amount of the claims and more than fifty percent of the number of claims allowed in the class.

Confirmation

A confirmation hearing will convene so the court can make a determination to approve the plan. The court will ensure the plan is in line with bankruptcy laws and requirements. Once it is confirmed, the Chapter 11 bankruptcy case may be closed until the plan is completed, allowing the filer to save money on fees and prevents the need to file reports on a monthly basis.

In most Chapter 11 cases, a bankruptcy trustee us not appointed. The filer acts in a manner a trustee would in a Chapter 7 or Chapter 13 proceeding. Control is maintained by the filer over their business and finances. They are also responsible for the examination and objection claims from creditors as well as filing tax returns, accounting and meeting the additional duties and requirements of reporting. The administrative side of the Chapter 11 bankruptcy filing is managed by the U.S. Trustee and ensures the debtor does that is required. That said, a Bankruptcy trustee may be appointed when the debtor does not want to act as the debtor in possession. The court may also appoint a trustee to manage the operations if the court has good reason or suspects incompetence or fraud.

Liquidation

This is an option in a Chapter 11 bankruptcy. A plan would shut down the operations of a filer and sell the assets that remain so the creditors can have at least received a portion of the debts owed. Liquidation may be better under Chapter 11 than Chapter 7 as the debtor who is in possession and their creditors have greater say over the execution of the Chapter 11 plan.

Source: https://upsolve.org/learn/what-is-chapter-11-bankruptcy

When dealing with Chapter 7 and Chapter 11 bankruptcies, the shareholders of the companies doing the filing are not likely to see returns on their investments. That said there are still some major differences. Read on to learn more.

Chapter 7 Bankruptcy

Also called “Liquidation Bankruptcy” At this stage firms are past the stage of reorganization and have to sell off any assets that are not exempt to satisfy creditors. Debts are collected according to “absolute priority” rules and a trustee make sure assets are sold and the funds distributed to the appropriate creditors. To obtain Chapter 7 relief a debtor may be an individual, a corporation or a small business. They are not allowed to proceed with bankruptcy if they have had a previous bankruptcy application dismissed within the previous 180 days should they not have made an appearance in court. When assets are sold the remaining debt is usually forgiven.

Chapter 11 Bankruptcy

Also called a “reorganization” or sometimes a ‘rehabilitation” bankruptcy. Available for nearly everyone, there is no debt limit and no income requirements. It is more complex and generally more expensive. It permits the firm to reorganize their debt by contacting its creditors to change the loan terms. It is initiated with a petition filing and according to The Small Business Reorganization Act of 2019 makes this form of bankruptcy more accessible for small businesses. To quote the act: “defined as entities with less than about $2.7 million in debts that also meet other criteria,”  it goes on to state: “imposes shorter deadlines for completing the bankruptcy process, allows for greater flexibility in negotiating restructuring plans with creditors, and provides for a private trustee who will work with the small business debtor and its creditors to facilitate the development of a consensual plan of reorganization.” Recently the Chapter 11 Subchapter V debt limit has been increased by President Donald Trump to $7,700,000 for cases filed following the CARES act.

Chapter 7 Vs. Chapter 11

Both Chapter 11 and Chapter 7 bankruptcy requires a trustee who will supervise the assets belonging to the debtor to ensure the continuation of business. In Chapter 11, debt is not absolved but if successful it is expected the business will continue to operate. When that is not possible the next step is liquidation and Chapter 7 bankruptcy.

Source: https://www.investopedia.com/ask/answers/differences-between-chapter-7-and-chapter-11/

If you are facing serious debt problems, filing for bankruptcy can assist. It prevents most collection actions, and lawsuits (with a few exceptions). It also eliminates many types of debt. But you will still have to pay your student loans (unless you can prove a hardship) and arrearages for child support, alimony, and most tax debts. Read on to learn more.

Prevent a Foreclosure, Repossession, or Eviction

Once filed, the court puts in place an order called the automatic stay. The automatic stay will stop all of these actions as long as they are still pending.

• Evictions. An eviction still in litigation will come to a halt after a bankruptcy filing. But the stay will likely be temporary. Keep in mind that if your landlord has an outstanding eviction judgment against you, a bankruptcy will not help most situations.
• Foreclosure and repossession. Although the automatic stay will stop a foreclosure or repossession, filing for Chapter 7 will not help you keep the property. However, Chapter 13 has it is possible you will be allowed to catch up on past payments so you can keep the asset.

How quickly your debt will get wiped out will depend on the chapter you file:

• Chapter 7 bankruptcy. This chapter takes an average of three to four months to complete.
• Chapter 13 bankruptcy. If you file for Chapter 13 rather than Chapter 7, you will likely have to pay back some portion of your unsecured debts through a three- to five-year repayment plan.

Wipe Out Secured Debt

If you cannot afford a payment that you secured with collateral—such as a mortgage or car payment—you can wipe out the debt in bankruptcy. But you will not be able to keep the house, car, computer, or other item securing payment of the loan

Here are some of the things that Chapter 13 can do.

Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan that will allow you to make up the missed payments over time (you’ll also have to stay current on your regular monthly payments). To make this plan work, you must be able to demonstrate that you have enough income to support such a repayment plan.

Allow you to keep property that is not protected with a bankruptcy exemption. No one gives up everything that they own in bankruptcy. You are allowed to protect (exempt) items you will need to work and live using bankruptcy exemptions. A Chapter 7 debtor gives up nonexempt property, but not a Chapter 13 filer. This does not mean that you get to keep more assets, however. You will need to pay the value of any nonexempt property to your creditors in your repayment plan.

What Bankruptcy Can’t Do

Prevent a secured creditor from foreclosing or repossessing property you cannot afford. A bankruptcy discharge eliminates debts, but it does not eliminate liens. A lien allows the lender to take property, sell it at auction, and apply the proceeds to a loan balance. For example, if you file for Chapter 7 bankruptcy, you can wipe out a home mortgage; however, the lender’s lien will remain on the home. As long as the mortgage remains unpaid, the lender can foreclose on the home (once the automatic stay lifts, of course).

Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy, so you will continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, you will have to pay these debts in full through your plan.

Eliminate student loans, except in extremely limited circumstances. Student loans can be discharged in bankruptcy only if you can show that repaying the loan would cause you “undue hardship,” which is a very tough standard to meet. You must prove that you cannot afford to pay your loans currently and that there’s truly little likelihood you can do so in the future.

Eliminate most tax debts. Eliminating tax debt in bankruptcy is not easy, but it’s sometimes possible for older unpaid tax debts.

Eliminate other non-dischargeable debts. The following debts are not dischargeable under either chapter:

• Debts you forget to list in your bankruptcy papers (unless the creditor learns of your bankruptcy case)
• Debts for personal injury or death due to intoxicated driving, and
• Fines and penalties imposed as a punishment, such as traffic tickets and criminal restitution.

If you file for Chapter 7, these debts will remain when your case is over. In Chapter 13, you will pay these debts in full through your repayment plan.

Debt related to fraud might or might not get eliminated. A fraud-related debt will not be discharged if a creditor files a lawsuit (called an adversary proceeding) and convinces the judge that the debt should survive your bankruptcy

Source: https://www.nolo.com/legal-encyclopedia/chapter-7-13-bankruptcy-limits-benefits-30025.html