Out-of-control debt can cause significant stress. In some cases, people living in California may need bankruptcy protection while they take steps to manage their finances. Chapter 13 and Chapter 11 bankruptcy plans allow individuals to keep their assets while managing and repaying their debt. The differences between them include plan complexity, costs and eligibility requirements.
Why Chapter 11 or 13?
Some types of bankruptcy, such as Chapter 7, require debtors to turn over their assets to the bankruptcy trustee for liquidation and distribution to creditors. While this results in a quick discharge of all remaining, eligible debt, it also means that the debtor may lose property that they might otherwise want to keep, such as a home, valuable jewelry, or a second vehicle.
Chapters 11 and 13 allow debtors to avoid asset liquidation. Instead, debtors submit a repayment or reorganization plan to the bankruptcy court for approval. Completing the plan under either chapter can result in the discharge of eligible debt.
Differences between Chapter 11 and Chapter 13
There are several differences between the two plans:
- Entity type: Only individuals can file for Chapter 13 while both businesses and individuals can file for Chapter 11.
- Financial eligibility: There are limits on debt levels and income for Chapter 13 filers. These do not apply to those filing for Chapter 11.
- Timeline: Chapter 13 bankruptcy plans are completed in three or five years. Chapter 11 doesn’t have a mandated timeline.
- Cost: Because Chapter 11 bankruptcy is customized to the needs of the debtor, it can be much more expensive to create.
Choosing a bankruptcy chapter is a matter of determining what a debtor’s goals are and whether the debtor meets a chapter’s eligibility requirements. Understanding available bankruptcy options can help an individual make the right decision.