Chapter 11 and Chapter 13 bankruptcy are both similar. They help debtors to re-organize their debt and make repayment easier. It re-organizes the debt such that both the debtor and the creditor get some level of protection. This process is great for debtors to get back on their feet on time after a serious financial crisis.
Although the creditors may still bear some loss, it is more favorable to them than Chapter 7 bankruptcy.
What Chapter of Bankruptcy is Best for Me?
Chapter 7 bankruptcy is best for individuals who cannot afford to repay any portion of the loan. This typically is due to a lack of disposable income. However, the requirement for qualifying for a Chapter 7 bankruptcy discharge is a very strict one. One major requirement is that you should earn learn than the average income for your state.
Chapter 11 and Chapter 13 bankruptcy are called reorganizations. Debtors who file for Chapter 11 or 13 bankruptcy hope to get a repayment plan that allows them to pay only a portion of what they owe while the court discharges the remaining. Both types of bankruptcy are good for high net worth debtors who want to avoid repossessions, debt collection lawsuits, wage garnishments, etc.
Although both chapters 11 and 13 bankruptcy look similar, they are actually very different. Most individuals and couples who hope to get a debt relief that will help them re-organize their life usually file under Chapter 13 bankruptcy, while Chapter 11 bankruptcy cases mostly cater to business; although individuals with high-value assets prefer to file under Chapter 11 bankruptcy.
What is the Difference Between Chapter 13 and Chapter 11, Subchapter V?
Both Chapter 11 and Chapter 13 bankruptcy allows the debtor to re-organize their debt. This makes it easier to pay off any financial obligation. However, a business can file for bankruptcy under the Chapter 11 Subchapter V process. It helps in a lease agreement, and it is highly flexible. This helps to re-organize a contract to allow business owners to keep operating their business.
Let’s further discuss the two types of bankruptcy to know which is best for you.
Cost of Filing for Bankruptcy
The cost of a bankruptcy case under Chapter 11 subchapter V is higher than the cost of filing for bankruptcy under Chapter 13 bankruptcy.
Anyone who wants to file a Chapter 11 Subchapter V case will first have to pay $1,717 as the cost of filing for a case. An individual filing for a Chapter 13 case will only have to pay $310. The average cost of hiring an attorney for a Chapter 11 bankruptcy can be as high as $50,000. The average cost of hiring an attorney for Chapter 13 bankruptcy is between $3,000 and $5,000.
Debt Limits for Filing Bankruptcy
Whether you’re filing for a Chapter 11 or Chapter 13 bankruptcy, they both have a debt limit. If you want to file a Chapter 13 bankruptcy, you should know that the debt limit for secured debt is $1,184,000, while for unsecured debt is $394,725. If your debt is above those limits, then you should apply for a Chapter 11 Subchapter V bankruptcy if your secured and unsecured debt a lesser than $2,725,625. However, from 2021, the debt limit for Chapter 11 subchapter v, according to the CARES Act, is $7,500,000. The coronavirus epidemic caused the incremental debt limit to help businesses.
Bankruptcy Repayment Plans
Generally, Chapter 11 bankruptcy plans are more complicated than an average Chapter 13 bankruptcy plan. But the Subchapter V bankruptcy plans are very streamlined and are not as complex as the normal Chapter 11 bankruptcy plan. Chapter 11 Subchapter V plan is highly similar to the Chapter 13 bankruptcy plan than the normal Chapter 11 plan.
If you’re applying for a Chapter 11 Subchapter V bankruptcy plan, you’ll be expected to commit all your expected disposable into the plan, just like what happens in Chapter 13 bankruptcy. Another similarity is that the repayment period is between three to five years. The administrative expenses are paid in bits over the course of the bankruptcy repayment plan. In both types of bankruptcy, a discharge will only be issued when the debtor fulfills the obligated payments.
Bankruptcy Trustee
A bankruptcy court only appoints a bankruptcy trustee in Chapter 11 bankruptcy when the case involves fraud or gross financial mismanagement. But for Chapter 11 Subchapter V bankruptcy, the court will appoint a bankruptcy trustee. However, the role of a trustee here is distinctively different from their role in Chapter 13 bankruptcy cases.
In Chapter 13 bankruptcy, the trustee collects payments from the debtor and uses them to pay the creditors as agreed and approved by the bankruptcy court. But in Chapter 11 Subchapter V case, the main role of the trustee is to organize a meeting between a debtor and a creditor to develop a bankruptcy plan that fits the goal of both parties.
Conclusion
Consumer debtors whose ultimate goal for filing for bankruptcy is to get relief from their debt will see Chapter 13 bankruptcy as a more preferred option—a major reason for this is that it’s relatively cheaper and less complex than Chapter 11 bankruptcy.
Most small business owners will also prefer Chapter 13 bankruptcy because it is way cheaper, however, if the debt is higher than the debt limit for Chapter 13 bankruptcy, then the next option should be Chapter 11 Subchapter V case. Subchapter V bankruptcy offers the added benefit of better flexibility.
Filing for bankruptcy is dependent on where you are in the country as well, for instance if you are in filing for bankruptcy in New York, filing for bankruptcy in South Carolina, or filing for bankruptcy in Massachusetts, they are all going to have their unique procedures.
