Why Would an Individual or Business File for Chapter 11 Bankruptcy Instead of Chapter 13?

Both businesses and individuals who own a business can use Chapter 11 or Chapter 13 bankruptcy to obtain debt relief through new loan repayment terms. Still, even though the two chapters seem similar at a glance, there are important differences that may make filing Chapter 11 bankruptcy more or less attractive.

In some ways, the difference between the two chapters involves the amount of structure involved in the filing process. Overall, anyone filing for Chapter 11 bankruptcy has significantly more responsibility and accountability, due to differences such as the following:

  • Amount of debt: Since there are no limits on the amount of debt in Chapter 11 bankruptcy, it may be appropriate for businesses and individuals whose outstanding debt exceeds the limits of Chapter 13.
  • Process flexibility: A Chapter 11 filing makes use of a debtor in possession, rather than a trustee. Creditors vote directly on the repayment plan, with the majority determining the acceptability of the terms.
  • Length of the process: The inherent flexibility of Chapter 11 involves more negotiation, and it typically takes longer to reach consensus on a final plan.
  • Complexity: In addition to the direct involvement between the debtor in possession and the creditors, each repayment that would normally be channeled through a single payment to a trustee must be made directly to each creditor in accordance with the plan.

It is important to understand that greater control and flexibility are not always beneficial. Before choosing between Chapter 11 and Chapter 13, it is vital to retain a skilled bankruptcy attorney who can conduct a thorough analysis of your financial circumstances to identify the option that meets your specific needs.

Choosing the right type of bankruptcy can be confusing. To obtain an accurate assessment and find the solution that meets your unique needs, a Certified Specialist in Bankruptcy Law by the State Bar of California can provide valuable insight. 

Topics:  Chapter 11, Chapter 13, Commercial Bankruptcy, Consumer Bankruptcy, Debt-Relief Industry

Published In: Bankruptcy Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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