Chapter 11 vs. Chapter 13: An Overview

There are some notable differences between Chapter 11 and Chapter 13 bankruptcy, including eligibility, cost, and the amount of time required to complete the process. Both bankruptcies give debtors the opportunity to stay in business and to restructure their finances. Barring some limitations, both bankruptcies allow filers to modify their payment terms on secured debts, provide time to sell assets, and eliminate obligations the filer cannot pay over the plan’s term. While both allow the discharging of debts, more can be discharged under Chapter 13.

Key Takeaways

  • Chapter 11 and Chapter 13 bankruptcies allow for the discharging of debts but have different costs, eligibility, and time to completion. 
  • Chapter 11 can be done by almost any individual or business, with no specific debt-level limits, nor required income.
  • Chapter 13 is reserved for individuals with stable incomes, while also having specific debt limits.
  • Chapter 13 includes a trustee appointment that will handle distributing all income to creditors over a three- to five-year time period.

Chapter 11

Nearly everyone can file a Chapter 11 bankruptcy, including individuals, businesses, partnerships, joint ventures and limited liability companies (LLCs). There is no specified debt-level limit, nor required income.

Chapter 13

Chapter 13 bankruptcy can only be filed by individuals with a stable income. Debt limitations are also part of Chapter 13 eligibility, and the limits change regularly. As of 2019, limits are approximately $419,275 in unsecured debt and $1,257,850 in secured debt.

Key Differences

Chapter 13 involves the appointment of a trustee, while with Chapter 11, this is optional and not usually done. The trustee’s role includes reviewing the bankruptcy proposal, making recommendations to the court, and the collection and distribution of creditor payments.

Chapter 11 bankruptcy often has complex and expensive proceedings. There are provisions, however, that help to streamline cases involving small business owners. If a debtor meets all the requirements, there's no limit to a Chapter 11 plan’s duration, though typical plans are structured for three to five years. The court can extend the time frame of the plan for debtors who need more time to make the required payments.

The approval process for Chapter 13 bankruptcy is generally much more expedient. There's a set commitment period, however, of three to five years, during which a debtor must relinquish essentially all disposable income to the appointed trustee for distribution among creditors. The commitment period can be shortened, but never extended.