The business environment today is highly competitive and it has become harder and harder for small business to stay afloat, reason for which many such companies find themselves in financial distress. While some of them may find their way out of these difficult times, others have no choice but to file for bankruptcy. The bankruptcy law gives small businesses two restructuring options, if the debtors wish to try and stay in business, and those options are Chapter 13 bankruptcy or filing for Chapter 11. Debtors who do not want to stay in business can file for liquidation bankruptcy, which is under Chapter 7. Although the two options mentioned above, the 13 and Chapter 11 bankruptcy, have some similarities, both of them allowing business owners or managers to continue their operations by proposing finance restructuring plans, there are also great differences between them and below you will be able to learn about the most important ones. |
One of the main differences between Chapter 13 bankruptcy and Chapter 11 is represented by the eligibility conditions. While virtually everybody can file for Chapter 11 bankruptcy, the Chapter 13 type is limited to only particular debtors. For example, only debtors with regular income can file for Chapter 13 and only those individuals who operate their businesses alone, being sole proprietors, because small businesses that operate under partnerships or corporations are not eligible for this type of bankruptcy either. Another difference between the two chapters is that Chapter 13 has debt limitation, whereas Chapter 11 doesn’t. Individuals who owe more than $1,149,525 in secured debt and over $383,175 in unsecured debt can’t file for Chapter 13 and these limitations change from time to time. At the opposite end, if you want to file for Chapter 11, it doesn’t matter if you are the sole proprietor of your business, if it is operated under joint venture or partnership and it also doesn’t matter how much you are in debt for. There are no limitations or requirements when it comes to this type of bankruptcy filing. Even so, when possible, many more small business owners and managers choose Chapter 13 over 11, because the latter may be more flexible, but it is also more costly and requires much more time.
To that extent, another difference between Chapter 13 bankruptcy and Chapter 11 is the manner of proceedings. In Chapter 13 filing, the plan approval process takes significantly less time, while Chapter 11 proceedings are long and expensive. In addition, in Chapter 11 bankruptcy cases a trustee is almost never appointed, while in Chapter 13 cases, the court always appoints a trustee to collect plan payments and distribute them to creditors. Last, but not least the number of dischargeable debts differs from one type of bankruptcy to another. The main reason for which small business owners file for bankruptcy is that they want to discharge obligations to creditors and more debts can be discharged with Chapter 13 than with Chapter 11.
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