Chapter 11 vs Chapter 13
When you are drowning in debt with no end in sight, you might be considering bankruptcy as a way to relieve your debt woes. While filing for bankruptcy can be a vital step toward getting your life back on track, obtaining debt relief through bankruptcy might seem a little too overwhelming, and one of the first major decisions you will have to make is which chapter to file.
There are several bankruptcy chapters to choose from, but Chapter 7, 11, and 13 are the most common ones. While we have previously discussed the differences between Chapter 7 and Chapter 11 bankruptcies, it’s time to compare Chapter 11 and Chapter 11 bankruptcies.
If you feel that your debts are getting out of control and your bills are piling up, filing for bankruptcy might be the solution you need. At Hoke Law Firm, our bankruptcy attorney in Baton Rouge, Louisiana, can help you decide if filing for bankruptcy is the best option for you and, if so, which chapter would align best with your circumstances and goals.
Difference Between Chapter 11 and Chapter 13 Bankruptcy
While both Chapter 11 and Chapter 13 bankruptcies provide a pathway for reorganization of your debt and share many other similarities, they also have several key differences:
1. Eligibility
Chapter 11 is generally used by businesses but can also be an option for individuals with substantial debts or assets. There are no specific debt limits for Chapter 11, making it suitable for those whose debts exceed the limits set for Chapter 13. It’s often referred to as a "reorganization" bankruptcy, allowing debtors to restructure their debts while continuing their business operations or income-generating activities.
Chapter 13 – often referred to as a “wage earner’s plan” – is designed for individuals with a regular income who wish to restructure their debts and pay them off over time. Unlike Chapter 11, Chapter 13 has strict eligibility criteria based on the amount of debt. According to the United States Courts website, a debtor is eligible for bankruptcy relief under Chapter 13 when their combined total secured and unsecured debts do not exceed $2,750,000. These limits are adjusted periodically to reflect changes in the consumer price index.
2. Administrative Requirements and Fees
Filing for Chapter 11 has complex administrative requirements and higher costs. The total fees you must pay to file a bankruptcy petition under Chapter 11 is $1,738, not to mention that there may be additional costs for legal and professional services. Debtors must also submit detailed schedules of assets and liabilities, a statement of financial affairs, and a proposed reorganization plan.
Chapter 13 is less expensive and administratively simpler compared to Chapter 11. The filing fee is $313. Debtors must file a repayment plan, as well as schedules of assets and liabilities, current income and expenditures, and a statement of financial affairs.
3. Codebtor Stay
Chapter 11 does not automatically provide a stay of actions against codebtors. This means that creditors can pursue codebtors for repayment even if the primary debtor has filed for Chapter 11.
One of the key benefits of Chapter 13 is that it protects any individual who is jointly liable on a consumer debt. This can be particularly advantageous for couples or family members who have co-signed loans or other financial obligations.
4. Trustee Oversight
In Chapter 11 cases, the court won’t generally appoint a trustee unless the case involves allegations of fraud or mismanagement. Thus, if the court deems it necessary, it may appoint a trustee to oversee the case. In most other cases, the debtor generally remains in control as a "debtor in possession," managing the business and its operations during the entire reorganization process.
When filing for bankruptcy under Chapter 13, a trustee is appointed in every case. The trustee’s role is to review the repayment plan, collect payments from the debtor, and distribute them to creditors. The trustee also monitors the debtor’s compliance with the plan and can take action if the debtor fails to adhere to the agreed-upon terms.
5. Means Test
The means test, which determines eligibility based on income, does not apply to Chapter 11 bankruptcies. This makes Chapter 11 an option for high-income earners who might not qualify for Chapter 13.
The means test is a critical component of Chapter 13 eligibility. This test compares the debtor’s income to the median income for their respective state. When the debtor’s income exceeds the median, they must complete a more complex version of the test to determine their disposable income and ensure they can make plan payments.
6. Plans and Plan Payments
In Chapter 11, the debtor proposes a reorganization plan that outlines how they intend to pay back the debt over time. Creditors are allowed to vote on the plan, and it must be confirmed by the court. The plan can involve restructuring business operations, selling assets, or other strategies to generate funds for repayment.
Under Chapter 13, the debtor submits a repayment plan to the court, detailing how they will pay back creditors over a three to five-year period. The length of the plan depends on the debtor’s income level. For debtors with a below-median income, repayment plans typically last three years. For debtors with an above-median income, plans can extend to up to five years. The debtor makes regular monthly payments to the trustee, who then distributes the funds to creditors as specified in the plan.
Can’t Choose? Get Help from a Bankruptcy Attorney in Baton Rouge, Louisiana
If you are not sure which chapter is right for you, you might want to consider contacting Hoke Law Firm. We have an attorney who can advise you on your options based on his decades of experience in bankruptcy law. Our attorney will determine if filing for bankruptcy is a good option, assess your eligibility, propose a manageable repayment plan, and guide you through the entire process. If you are ready to regain control of your finances and work toward a bright future, feel free to schedule your consultation today.