Should My Business File Chapter 11 or Chapter 13?

Should My Business File Chapter 11 or Chapter 13?

Of the various types of bankruptcy, Chapter 11 and Chapter 13 are the only ones used to reorganize debt for some business owners. Individuals may also use Chapter 13, but not Chapter 11. The structure for each is set up differently, and sole proprietorships are treated differently than bigger companies, such as a limited liability company or a corporation.

Each utilizes a different type of oversight method—sometimes even a committee. The biggest difference between these two types of bankruptcy is not the result, but who is allowed to use each method. Click here for more bankruptcy information (

Chapter 13 Bankruptcy

Chapter 13 is generally used when individuals want to reorganize their debts rather than having them discharged altogether. As far as businesses go, only a sole proprietorship can use Chapter 13 bankruptcy. Limited liability companies, partnerships, and corporations are not allowed to file bankruptcy using Chapter 13. There are certain advantages to using this method over Chapter 7 or Chapter 11. For information on Chapter 7 bankruptcy, click here (

  • Not as complicated as Chapter 11
  • Not as expensive as Chapter 11 because it is not as complicated
  • Allows the business to continue to operate, unlike Chapter 7

Chapter 13 also has certain limits because it is meant for individuals and sole proprietorships. Those whose businesses exceed these limits must file under Chapter 11 if they plan to file as a business that is going to reorganize its debt rather than discharge it.

  • Chapter 13 cannot be used if the debtor has more than $383,175 in unsecured debt
  • Chapter 13 cannot be used if the debtor has more than $1,149,525 in secured debt

Chapter 11 for Small Businesses

Chapter 11 is the type of bankruptcy that some small businesses file when they want to reorganize their finances. Sole proprietorships may use this method, but they are not obligated to unless their debts exceed the limits of Chapter 13 bankruptcy. Chapter 11 has its own terms and conditions, but there are certain advantages for businesses who use this method to reorganize their debts.

  • Chapter 11 allows businesses to downsize as needed in order to pay off some of their debts
  • Chapter 11 allows businesses access to their assets and the ability to sell off some of those assets in order to pay off debts.

These two methods can help businesses that want to reorganize and continue on while using a different financial system. It is important that the business actively works to come up with a reorganization of their debts within the time frame set forth by each of the types of bankruptcy. They must also comply with the terms set forth, which often mean frequent reports concerning the status of their debts.

Although no business owner wants to file bankruptcy, it is sometimes the only viable choice when the business wants to keep its current name and take advantage of the branding efforts they have made in the past. For some businesses, filing either Chapter 11 or Chapter 13 is the only way they can keep the business going.

Please share this post online with business owners considering Chapter 11 or Chapter 13 bankruptcies.

Related Links:

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