What is the Difference Between Chapter 11 and Chapter 13 Bankruptcy for Consumers?


Most consumers in Oak Park who are considering bankruptcy are faced with the question of whether to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, and many people want to learn more about the distinction between these two bankruptcy chapters. While Chapter 7 and Chapter 13 bankruptcy certainly are the most common forms of consumer bankruptcy, sometimes consumers will need to file for Chapter 11 if bankruptcy.

Given that Chapter 11 and Chapter 13 bankruptcy actually have more similarities in terms of structure than Chapter 7 and Chapter 13 bankruptcy, we want to tell you more about the differences between these two chapters and to explain why a consumer should start with Chapter 13 bankruptcy—instead of Chapter 11 bankruptcy—if it is an option.

Both Chapter 13 and Chapter 11 are Reorganization Bankruptcies
Under the U.S. Bankruptcy Code, both Chapter 13 and Chapter 11 bankruptcy are forms of reorganization bankruptcy. Unlike a Chapter bankruptcy (which involves liquidating assets to repay creditors and receiving a relatively speedy discharge), reorganization bankruptcies reorganize—or restructure—debts.

What does it mean to reorganize a debt? This phrase in effect refers to a process of developing a payment plan that will last over a period of two to five years (in most situations), and will result in the debtor repaying a portion of the debt owed to one or more creditors. The repayment plan requires the debtor to make fixed payments to the bankruptcy trustee over a period of time specified in the terms of the repayment plan. The bankruptcy trustee takes those fixed payments and distributes funds to creditors based on the repayment plan specifications.

Ultimately, creditors may not receive full payment on the debts that the debtor owes. However, at the end of the repayment plan period, as long as the debtor has made regular payments and abided by the terms of the plan, any remaining eligible debts can be discharged.

Both Chapter 13 and Chapter 11 Can Stop Foreclosure
Due to the automatic stay, both Chapter 13 and Chapter 11 can stop a foreclosure. Both types of bankruptcies, unlike Chapter 7, can allow the debtor to get back on track with payments and avoid losing their property.

Chapter 13 Costs Much Less Than Chapter 11
It costs much less to file for Chapter 13 bankruptcy than for Chapter 11 bankruptcy, and thus most individuals should determine whether they are eligible to file for Chapter 13 bankruptcy before turning to Chapter 11 bankruptcy. These are the costs:
  • Chapter 13: $235 case filing fee + $$75 miscellaneous administrative fee; and
  • Chapter 11: $1,167 case filing fee + $550 miscellaneous administrative fee.
As you can see, Chapter 11 costs significantly more. Why would any debtor file for Chapter 11 over Chapter 13? In short, when a consumer files for Chapter 11 bankruptcy, it is most often because she is ineligible for Chapter 13.

Chapter 13 Has Debt Limits
A consumer ultimately might have to file for Chapter 11 bankruptcy if she has more debts than are permitted under Chapter 13. Unlike Chapter 11, Chapter 13 has the following debt limits:
  • Secured debts of more than $1,257,850; and
  • Unsecured debts of more than $419,275.
If you have debts totaling more than those amounts, Chapter 11 might be the only bankruptcy options.

Contact a Bankruptcy Lawyer in Oak Park
Do you have questions about filing for consumer bankruptcy? A bankruptcy lawyer in Oak Park can help. Contact the Emerson Law Firm to speak with an advocate today.


See Related Blog Posts:

What Documents Do I Need to File for Bankruptcy?

Wage Garnishment and Bankruptcy in Illinois

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