Differences Between Chapter 11 & Chapter 13 Bankruptcies

By Stephanie Mojica

There are several differences between Chapter 11 and Chapter 13 bankruptcies, the primary one being who can file for each type of bankruptcy. Businesses cannot file for Chapter 13 and are steered toward Chapter 11 reorganization bankruptcy, or total liquidation of assets and debts through Chapter 7. Both Chapter 11 and 13 do allow filers to try to preserve some of their assets.

Chapter 11 Defined

Chapter 11 allows a corporation to attempt to restructure its business by selling some of its assets and possibly even having the court excuse some of the debts they cannot pay. Most businesses who file Chapter 11 bankruptcy are doing so to try to save their company from closing.

Chapter 13 Defined

Chapter 13 is a court-supervised debt repayment plan designed for individuals, and does not cover businesses or their debts. It typically forgives some consumer debt and allows the person filing to keep assets such as a house while in debt repayment.

Repayment Plan

If creditors do not approve of a repayment plan in either Chapter 11 or Chapter 13, a judge can order a method of debt repayment. This could be an advantage to those who are in business or have personal contracts they cannot keep.

Similarities

In both Chapter 11 and Chapter 13, a bankruptcy trustee of the federal court becomes deeply involved in either the person's or corporation's financial affairs. Filers are subject to budget requirements and review of their expenses and assets.

Benefits

Any bankruptcy proceeding automatically stops a creditor's efforts to collect debts, which can provide some time and relief from the situation for the filer. Creditors cannot sue, contact the debtor or seize assets while the court is handling a Chapter 11 or Chapter 13 case.

About the Author

Stephanie Mojica has been a journalist since 1997 and currently works as a full-time reporter at the daily newspaper "The Advocate-Messenger" in Kentucky. Her articles have also appeared in newspapers such as "The Philadelphia Inquirer" and "The Virginian-Pilot," as well as several online publications. She holds a bachelor's degree from Athabasca University.