Filing Chapter 11 or Chapter 13
If you are a struggling small business owner faced with the prospect of filing for bankruptcy and looking to stay in business, you may know that you have two basic options: Chapter 11 or Chapter 13. Each has its own set of circumstances for eligibility, and each bankruptcy option brings a different set of benefits and drawbacks. In some senses the two are very similar, but in important ways they are quite different. Here is a very basic outline of the differences between Chapter 11 and Chapter 13 for small businesses.
Filing For Bankruptcy Under Chapter 11
If your small business is no longer viable, you will file Chapter 7 liquidation and your company will cease to exist. If, however, you wish to remain in business after filing for bankruptcy, then either Chapter 11 or Chapter 13 is the way to go. Chapter 11 has no debt requirements, no income requirements, no filing limitations - no limitations of most any kind, in fact. Anyone can file for Chapter 11.
Unfortunately, that comes with the drawback that filing for bankruptcy under Chapter 11 is, almost without exception, a complicated - and expensive - proposition. There are provisions whereby a small business owner can file a special type of Chapter 11, however, and avoid much of this expense and complexity. Getting approval for this process can be time consuming, but may be worth it in order to enjoy the benefits of Chapter 11 filing. One of the main reasons for filing for bankruptcy under Chapter 11 is that it has no set time frame for repayment - the plan is made by you or your appointed trustee and approved by the court. This can be very important in cases where you, the business owner, need an extended repayment plan to pay back some debts.
Filing For Bankruptcy Under Chapter 13
Chapter 13, in contrast to Chapter 11, does have filing requirements; first and foremost relevant to this discussion, only an individual may file Chapter 13. This means that your small business must be a sole proprietorship and you must file on the business's behalf. Corporations and LLCs are not eligible. Additionally, you may not owe more than a certain amount in order to qualify - currently that amount is $1,149,525 in secured debt and $383,175 in unsecured debt.
Most sole proprietorships choose to file Chapter 13 if they qualify, because in addition to the streamlined process, filing for bankruptcy under Chapter 13 discharges more types of debt than would qualify under a Chapter 11 bankruptcy. Chapter 11 is generally used by large corporations seeking the protections of bankruptcy while they continue to do business and reorganize financially.
Filing For Bankruptcy Under Chapter 11
If your small business is no longer viable, you will file Chapter 7 liquidation and your company will cease to exist. If, however, you wish to remain in business after filing for bankruptcy, then either Chapter 11 or Chapter 13 is the way to go. Chapter 11 has no debt requirements, no income requirements, no filing limitations - no limitations of most any kind, in fact. Anyone can file for Chapter 11.
Unfortunately, that comes with the drawback that filing for bankruptcy under Chapter 11 is, almost without exception, a complicated - and expensive - proposition. There are provisions whereby a small business owner can file a special type of Chapter 11, however, and avoid much of this expense and complexity. Getting approval for this process can be time consuming, but may be worth it in order to enjoy the benefits of Chapter 11 filing. One of the main reasons for filing for bankruptcy under Chapter 11 is that it has no set time frame for repayment - the plan is made by you or your appointed trustee and approved by the court. This can be very important in cases where you, the business owner, need an extended repayment plan to pay back some debts.
Filing For Bankruptcy Under Chapter 13
Chapter 13, in contrast to Chapter 11, does have filing requirements; first and foremost relevant to this discussion, only an individual may file Chapter 13. This means that your small business must be a sole proprietorship and you must file on the business's behalf. Corporations and LLCs are not eligible. Additionally, you may not owe more than a certain amount in order to qualify - currently that amount is $1,149,525 in secured debt and $383,175 in unsecured debt.
Most sole proprietorships choose to file Chapter 13 if they qualify, because in addition to the streamlined process, filing for bankruptcy under Chapter 13 discharges more types of debt than would qualify under a Chapter 11 bankruptcy. Chapter 11 is generally used by large corporations seeking the protections of bankruptcy while they continue to do business and reorganize financially.
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