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Chapter 13 and Chapter 11 Bankruptcy cases allow debtors to reorganize their debts. By reorganizing debts through a bankruptcy case, debtors and creditors receive certain protections. The process is intended to help debtors get back on their feet after a financial crisis. Even though creditors may not receive all the money they are owed, they typically receive more than they would receive in a Chapter 7 liquidation. 

What Chapter of Bankruptcy is Right for Me?

If you cannot afford to repay any portion of your debts, a Chapter 7 liquidation might be right for you. However, Chapter 7 cases require that you meet stringent income requirements. If you earn more than the median income level for your state, you may not qualify for a bankruptcy discharge (debt forgiveness) in Chapter 7. 

Chapter 13 and Chapter 11 bankruptcy cases are reorganizations. Debtors in Chapter 13 and Chapter 11 enter bankruptcy repayment plans that give them the debt relief they need while allowing them to repay as much of their debt as they can afford. Debtors protect assets and income while avoiding aggressive debt collection activities, such as foreclosures, repossessions, wage garnishments, and debt-collection lawsuits.

However, Chapter 13 and Chapter 11 have significant differences. Most individuals and couples seeking to reorganize their debts in bankruptcy generally file under Chapter 13. Chapter 11 cases usually involve businesses, but some individuals who have debts that exceed the Chapter 13 limits or have complex, high-value assets may file under Chapter 11.

What Is The Difference Between Chapter 13 and Chapter 11 Subchapter V?

Both chapters of bankruptcy allow you to reorganize your debts. However, business entities can file under Chapter 11 Subchapter V. Businesses are not permitted to file under Chapter 13. Chapter 11 Subchapter V also has more flexibility for restructuring contracts and lease agreements to allow a business owner to continue to operate the business. Let’s take a look at the differences between the two chapters of bankruptcy to help you decide which chapter of bankruptcy is right for you.

Cost of Filing Bankruptcy

The cost of filing a Chapter 13 case is less than the cost of filing a Chapter 11 Subchapter V case. The filing fee for a Chapter 13 case is $310, whereas the filing fee for a Chapter 11 Subchapter V case is $1,717. Attorneys’ fees for Chapter 11 cases are traditionally higher than attorneys’ fees in Chapter 13 cases. In Chapter 13 cases, attorneys’ fees average between $3,300 and $5,000, depending on the state and the complexity of the case. However, attorneys’ fees in Chapter 11 cases can be over $50,000.

Chapter 11 Subchapter V cases are still relatively new. They are smaller, streamlined versions of typical Chapter 11 cases. Therefore, the attorneys’ fees for Subchapter V cases may be much lower than a typical Chapter 11 case. 

Debt Limits for Filing Bankruptcy

Both Chapter 13 and Chapter 11 have debt limits. The Chapter 13 debt limits 2020 are unsecured debts of $419,275 or less and secured debts of $1,257,850 or less. If the debts exceed these limits, the debtor may need to file bankruptcy under Chapter 11.

Chapter 11 Subchapter V debt limits are much higher. Secured and unsecured debts must be less than $2,725,625 for a debtor to qualify for Subchapter V treatment. However, the CARES Act increased the debt limit in Subchapter V to $7,500,000 for the next year. The increase in the debt limit allows a greater number of small businesses to qualify for Subchapter V treatment to help provide bankruptcy relief for businesses impacted by the COVID-19 outbreak.

Bankruptcy Repayment Plans

Chapter 11 plans are generally more complicated than Chapter 13 plans. However, Subchapter V plans are more streamlined compared to plans in a regular Chapter 11 case. Also, Subchapter V plans share more similarities to Chapter 13 plans than typical Chapter 11 plans.

Unlike a regular Chapter 11 case, Subchapter V debtors must devote all projected disposable income to the Chapter 11 plan, just like a Chapter 13 debtor. Also, Subchapter V Chapter 11 plans are between three to five years, just like a Chapter 13 bankruptcy plan. The administrative expenses in a Subchapter V case are spread out over the life of the plan, just like they are in Chapter 13 case. Debts in both cases are not discharged until the debtor completes all of the plan payments. 

Another similarity that Chapter 13 and Subchapter V share is who can file a plan. In Chapter 11 cases, creditors or other interested parties may file competing plans after a certain deadline. However, Subchapter V debtors have the exclusive right to file a plan, just like Chapter 13 debtors.

Bankruptcy Trustee

In Chapter 11 cases, bankruptcy trustees usually are not appointed unless the case involves gross mismanagement of finances or fraud. However, the court appoints a bankruptcy trustee in all Subchapter V cases. Even though a bankruptcy trustee is appointed in Chapter 11 Subchapter V cases, the trustee’s role is much different than the trustee’s role in a Chapter 13 case.

In Chapter 13 cases, the bankruptcy trustee receives payments from the debtor each month. The trustee uses those funds to pay the creditors according to the terms of the confirmed Chapter 13 plan. The trustee carefully monitors the case until the plan is completed and the case is closed. The debtor may be required to submit tax returns and other information the Chapter 13 trustee throughout the case.

In a Subchapter V case, the bankruptcy trustee’s primary role is to help the debtor work with creditors to develop a bankruptcy plan that is agreeable to all parties. The trustee helps minimize the need for costly and lengthy litigation to resolve disputes between the debtor and the creditors. The intent is to facilitate a quicker resolution in Subchapter V cases. 

Bottom Line – Chapter 13 or Chapter 11 Subchapter V Bankruptcy?

For the most part, Chapter 13 bankruptcy cases remain the preferred bankruptcy option for consumer debtors who need to reorganize their debts. Chapter 13 is less costly and less complex than a Chapter 11 case. Business owners whose personal debts do not exceed the debt limits of Chapter 13 may find that Chapter 13 is the preferred chapter of bankruptcy for reorganizing personal debts.

However, small business owners who need to file bankruptcy for their company may prefer a Subchapter V Chapter 11 case. The Subchapter V process provides additional flexibility and tools for reorganizing a business. Furthermore, most small businesses have debts that exceed the debt limits of a Chapter 13 case and do not qualify for Chapter 13 if the company is incorporated.

For more information about the Chapter 13 process, read our Chapter 13 Bankruptcy Guide and use our free Chapter 13 bankruptcy calculator to estimate your bankruptcy plan payment.If you are interested in the new “fast pass” Chapter 11 bankruptcy option, read our blog, “Chapter 11 Subchapter 5: 6 Things To Know” and our Chapter 11 Subchapter 5 Guide.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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