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Chapter 11 vs. Chapter 13: What’s the Difference?

Deciding Between Filing Chapter 11 of Chapter 13?

There are many reasons why people find themselves in a financial crisis. Whether mounting medical bills, increased household expenses, or business losses, being in debt not only takes a toll on you financially but can also be stressful. The good news is that bankruptcy can be a viable option to become debt-free and get a fresh start. For those people who want the option to keep their assets and property, both Chapter 11 and Chapter 13 can accomplish this task through debt reorganization, but they each have their own set of rules.

If you are investigating your bankruptcy options, it’s essential to know the differences between Chapter 11 and Chapter 13 bankruptcies so you can make an informed decision.

The main differences between Chapter 13 and Chapter 11 is:

  • Chapter 11 is used by large businesses to help them reorganize their business debts and repay their creditors while continuing their operations.
  • Chapter 13 discharges debt using a monthly repayment plan for 3 to 5 years.

For more details about each and which option is best for you, talk to an attorney.

What is Chapter 11 Bankruptcy?

Chapter 11 Bankruptcy is typically a good option for someone who is involved with a small business or business partnership. Filing for Chapter 11 allows individuals to reorganize their debt so they can keep their business running and pay back creditors over a period of time. Chapter 11 bankruptcy completion can take between six months up to two years.

You don’t have to be a business owner to be eligible to file for Chapter 11 bankruptcy. Read on to learn who could benefit from Chapter 11 bankruptcy.

Who Is a Candidate for Chapter 11 Bankruptcy?

Chapter 11 bankruptcy may be right for you if:

  • You don’t meet the debt limit requirements to file for Chapter 13 bankruptcy as an individual.
  • You want to keep your business running as you go through the bankruptcy process.
  • You want to avoid liquidation of property and other assets.

The Benefits of Chapter 11 Bankruptcy

Chapter 11 bankruptcy can give debtors the following advantages:

  • Make smaller payments to creditors through a debt restructuring plan.
  • Keep your business running while paying off creditors. This gives you the ability to still profit from your business during the bankruptcy process.
  • Lower your high-interest loans.
  • Avoid liens, lawsuits, levies, and foreclosures.
  • A debtor’s disposable income is not considered in Chapter 11 bankruptcy proceedings.
  • Keep your company reputation intact.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is another option for keeping assets through a debt reorganization plan that typically completes within three to five years. Chapter 13 is also a good option for anyone who isn’t eligible to file for Chapter 7 bankruptcy.

Who Is a Candidate for Chapter 13 Bankruptcy?

Chapter 13 bankruptcy may be right for you if:

  • You are behind on your mortgage payments.
  • You are being threatened with car repossession.
  • Creditors and debt collectors are harassing you.
  • You did not pass the “means test” and are ineligible to file for Chapter 7 bankruptcy. The “means test” is a tool used to measure your income against your expenses to determine if you have enough disposable income to pay off your existing debts.
  • You want to preserve assets that would otherwise be liquidated in Chapter 7 bankruptcy.

Although business entities are not eligible to file for Chapter 13 bankruptcy, you may be able to use Chapter 13 to relieve business-related debts as an individual or sole-proprietor if you are personally responsible.

The Benefits of Chapter 13 Bankruptcy

  • You can save your home from foreclosure.
  • You can keep your car, other property, and assets.
  • You can pay down certain tax debts through an affordable payment plan.

How the “Automatic Stay” Provision Protects You From Creditors

No matter what chapter of bankruptcy you choose, as soon as you file for bankruptcy, you are immediately protected from harassing collection calls and letters. The automatic stay is a provision under bankruptcy law that stops creditors and collection agencies from taking further action in pursuing debts owed. This means that creditors cannot start or move forward with any court proceedings or liens against your property or assets.

Contact a Los Angeles Bankruptcy Lawyer

Navigating the bankruptcy process can be a daunting task — especially if you are unfamiliar with complicated bankruptcy laws. The Turoci Bankruptcy Firm has helped hundreds of clients find the answer to overwhelming debt. You can rest assured that you are in good hands.

Attorney Todd Turoci is one of the few Certified Bankruptcy Specialists in the Central District and the only one in the Inland Empire, as designated by the American Board of Certification.

Contact us today at (310) 846-8454. Our firm offers free, no-obligation consultations for those who chose to retain our services.

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