The Differences Between Chapter 11 and Chapter 13 Bankruptcy

There are some differences between Chapter 11 and Chapter 13 bankruptcy, including eligibility, cost and amount of time required to complete the process.

Both Chapter 11 and Chapter 13 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.

There are significant eligibility differences between Chapter 11 and Chapter 13. 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 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 2015, limits are approximately $385,000 in unsecured debt and $1.15 million in secured debt.

Chapter 13 also involves appointing 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.

Another major difference between Chapter 11 and Chapter 13 is the elimination of obligations. Both bankruptcies can discharge debts. However, more can be discharged under Chapter 13.