Chapter 11 and Chapter 13 Bankruptcy Compared

Chapter 11 and Chapter 13 bankruptcy filings are on the rise in California and across the nation, leading many people to question how they might benefit from either type of debt relief. While the structure and level complexity of these types of bankruptcy filings have similarities, they apply to different sets of circumstances. The greatest similarity between a Chapter 11 and a Chapter 13 bankruptcy filing is that the debtor and either a Chapter 11 attorney or a Chapter 13 lawyer create a plan to reorganize and consolidate all debt. After the debt is consolidated, the end result is a court approved payment plan which will be used to pay off a portion of the debt owed by the filer to creditors. The second similarity is that both Chapter 11 and Chapter 13 bankruptcies are extremely complex and require the guidance of an experienced bankruptcy attorney to yield the best results.

Personal Debt and Bankruptcy

Beyond that similarity, Chapter 11 and Chapter 13 bankruptcies apply to different types of debtors. Chapter 13 bankruptcies are filed primarily by individuals with household income greater than the median income for their state of residence and the ability to make minimal payments to creditors. Individuals with an extensive list of assets can also benefit from a Chapter 13 bankruptcy due to greater flexibility in terms of keeping those assets versus a Chapter 7 filing. Like Chapter 11 bankruptcies, these bankruptcies are known as “reorganizations” and allow filers to keep a wide variety of real and personal property after the conclusion of the bankruptcy process. The end result of a chapter 13 bankruptcy is a payment plan which is created by a bankruptcy attorney and the debtor and then submitted to the court. Creditors must accept these payment plans as long as they meet certain legal standards.

Business Related Debts

A business, even if it is registered as a sole proprietorship, cannot file for Chapter 13 bankruptcy in the name of that business. Businesses are required to file bankruptcy under Chapter 11 when they need help reorganizing their debts. Depending on a host of circumstances and the advice of a bankruptcy attorney, a business owner can file for Chapter 13 bankruptcy as an individual. A Chapter 13 bankruptcy in this situation can include business related debts for which the debtor is personally liable.

A Chapter 11 bankruptcy is used primarily for bankruptcy protection for business types including sole proprietors, partnerships, and corporations. The process allows for a business to continue operations while reorganizing debt for partial payments to creditors. A Chapter 11 bankruptcy can also be filed by individuals who exceed the asset and debt limitations of a Chapter 13 bankruptcy. The increased flexibility given debtors in terms of the treatment of assets in a Chapter 11 bankruptcy can provide huge benefits. As an example, filing Chapter 11 bankruptcy can be very useful in real estate cases when the debtor is either trying to catch up on past due payments or needs to buy enough time to sell property that has equity which might have to be surrendered in a Chapter 13 bankruptcy

Business Bankruptcy vs. Personal Bankruptcy

The process involved in a Chapter 11 bankruptcy filing differs from other bankruptcy actions in that the owner of the business acts as trustee and retains possession of the business’ assets. This situation is referred to as “debtor-in-possession”, with assets and operations remaining in possession of the business.

Repayment Plan

Like a Chapter 13, a bankruptcy attorney will create a repayment plan with the client for presentation to the court. Unlike a Chapter 13, the creditors cast votes to determine whether they will accept or reject the plan. If the creditors reject the plan which has been submitted, the debtor and bankruptcy attorney can submit a new payment plan. At this point the presiding judge can force the creditors to accept the debtor’s plan if it meets the court’s criteria. Otherwise negotiations can continue toward an agreement. If the negotiations fail, the business will either have to file for liquidation under a business Chapter 7 or the case may be dismissed by the court.

Importance of Legal Strategy and Planning

The best results in both Chapter 11 and Chapter 13 bankruptcies are always achieved with detailed planning and preparation. Prior to filing all Chapter 11 and Chapter 13 bankruptcy petitions, James D. Zhou a California bankruptcy attorney specializing in complex cases, consults with clients regarding all aspects of the filing to determine a winning strategy for the short and long term. For a free consultation with James D. Zhou to determine how you can benefit the most from either a Chapter 11 and/or a Chapter 13 bankruptcy, visit http://zhouchinilaw.com/ or call the office of Zhou & Chini at (800) 972 9600.

From the author: California Chapter 11 Bankruptcy Law Firm

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