Chapter 11 vs. Chapter 13 Bankruptcy in 2025: Costs, Eligibility & Key Differences Explained

Chapter 11 bankruptcy is accessible to a broad range of filers, including individuals and businesses, while Chapter 13 is specifically designed for individuals with steady income.

Understanding Chapter 11 vs. Chapter 13 Bankruptcy in 2024

Chapter 11 and Chapter 13 bankruptcies serve different purposes and come with distinct eligibility requirements, costs, and timelines. Both provide debtors a chance to reorganize their finances and avoid liquidation, but they differ in terms of who can file and how debts are managed.

Both types allow modification of secured debt terms, time to liquidate assets, and discharge of some debts, with Chapter 13 generally permitting a broader range of debts to be discharged.

Key Highlights

• Chapter 11 and Chapter 13 are distinct bankruptcy types with unique processes.
• Both facilitate debt discharge but differ in eligibility, costs, and duration.
• Chapter 11 is open to almost any individual or business, without debt or income limits.
• Chapter 13 is reserved for individuals with regular income and debt limits ($465,275 unsecured, ~$1.4 million secured as of April 2022).
• Chapter 13 involves a trustee who manages income distribution to creditors over 3-5 years.

Chapter 11 Bankruptcy Overview

Chapter 11 filings are available to individuals, businesses, partnerships, joint ventures, and LLCs, with no debt or income restrictions. Known for its complexity and higher cost, it’s primarily used by businesses aiming to remain operational while restructuring debt.

This bankruptcy type enables companies to propose reorganization plans, including downsizing and expense reduction, to regain financial stability.

Major corporations like General Motors and Chrysler successfully utilized Chapter 11 during the 2008 financial crisis. Similarly, during the COVID-19 pandemic, retailers like J. Crew and JCPenney, along with Hertz and Neiman Marcus, restructured under Chapter 11 to survive economic challenges.

In 2023, SVB Financial Group filed Chapter 11 following regulatory shutdowns, aiming to reorganize after significant investment losses triggered a customer deposit run.

Chapter 13 Bankruptcy Explained

Chapter 13 is exclusively for individuals with steady income and subject to debt limits, which adjust every three years. The latest limits effective April 2022 are $465,275 for unsecured debt and approximately $1.4 million for secured debt.

This option allows debtors to keep assets like homes and vehicles by submitting a court-approved repayment plan lasting three to five years. Known as the “wage earner’s plan,” it requires monthly payments to a trustee, who distributes funds to creditors, ensuring fair repayment compared to other bankruptcy types.

Filing Fees

The cost to file Chapter 11 in 2024 is $1,738 (including a $571 administrative fee), whereas Chapter 13 filing fees are significantly lower at $313 (with a $78 administrative fee).

Why Choose Chapter 11?

Chapter 11 is ideal for businesses seeking to avoid permanent closure by restructuring debts. Its complexity and cost make it less practical for small businesses, which led to the 2020 Small Business Reorganization Act introducing Subchapter 5 to simplify the process for businesses owing less than $2.7 million.

This act shortens deadlines, increases negotiation flexibility, and appoints a private trustee to facilitate consensual reorganization plans.

Reasons to File Chapter 13

Individuals typically file Chapter 13 to prevent asset liquidation, notably to avoid forced home sales, which Chapter 7 cannot prevent. Chapter 13 requires stable income and adherence to debt limits, making it a practical alternative to the more costly and complex Chapter 11 for individuals.

Comparing Chapter 11 and Chapter 13

Chapter 13 mandates a trustee to oversee the repayment plan, while Chapter 11 trustee involvement is optional and uncommon. Chapter 11 plans can extend beyond five years if approved, whereas Chapter 13 plans are usually fixed at three to five years, with limited exceptions.

Impact of COVID-19 on Bankruptcy Laws

The 2020 CARES Act temporarily increased the Chapter 11 Subchapter 5 debt limit to $7.5 million, excluded COVID-19 relief payments from income calculations under Chapter 7 and 13, and allowed Chapter 13 repayment plans to extend up to seven years. These provisions applied to filings after the act’s enactment and expired one year later.

Summary of Main Differences

Chapter 11 is accessible to nearly all filers without debt or income limits, making it suitable for businesses and individuals alike. Chapter 13 targets individuals with stable income and debt limits, involves a trustee, and typically offers a faster approval process.

Who Qualifies for Chapter 11?

Virtually any individual or business can file Chapter 11, often used by companies aiming to restructure rather than liquidate. Success depends on the ability to reorganize debts effectively.

Post-Chapter 13 Process

Chapter 13 filers submit a court-approved payment plan to repay debts over time. Compliance with the plan leads to debt discharge. Due to evolving laws, consulting a bankruptcy professional is recommended to understand current rights and obligations.

Final Thoughts

Bankruptcy offers a legal path for individuals and businesses struggling with debt. Chapter 11 suits a broad range of filers seeking reorganization, while Chapter 13 is tailored for individuals with steady income and manageable debt levels. Consulting with financial experts is crucial to choosing the best bankruptcy option for your unique situation.

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