What are some differences between Chapters 11 and 13 bankruptcy?

If you are thinking about filing for bankruptcy as a business owner, you may have questions about which type is the best for you. Chapter 11 and Chapter 13 bankruptcies are similar in the fact that you have the opportunity to continue to run your business while you restructure your debts and finances. Both types allow you time to reorganize secured debt payments and sell your assets to pay some of the current debts owed.

Both bankruptcies allow the discharge of debt, but there are different requirements and costs associated with each type.

Chapter 11 Bankruptcy

According to Investopedia.com, almost anyone can file for a Chapter 11 bankruptcy, making it more accessible than a Chapter 13. Because a Chapter 11 bankruptcy is so complex, however, it is typically the most expensive bankruptcy to file. Business owners typically file for Chapter 11 bankruptcies because they want to remain in business during the process.

To benefit from a Chapter 11 bankruptcy, restructuring your debt must make sense financially. While you will be free to operate your business and may have a greater chance to achieve stability, Chapter 11 may not make sense if you have no resources to pay your debts at all.

Chapter 13 Bankruptcy

Unlike Chapter 11, Chapter 13 bankruptcies are only available to business owners under certain circumstances. For example, you must have a stable income and your debt cannot exceed $2.7 million. Your debt will also see restructuring under Chapter 13, and you must devise a plan to pay it within three to five years.

Most business owners file for Chapter 13 to protect their assets from total liquidation. One of the main differences between both types of bankruptcies is that Chapter 13 involves a trustee to oversee the distribution of payments to creditors, while Chapter 11 typically does not include a trustee at all.