Individual Debtors in a Chapter 11 vs. Chapter 13

Individual Debtors in Chapter 11 vs. Chapter 13

Bankruptcy LawChapter 11 Bankruptcy – Individual Debtors in Chapter 11 vs. Chapter 13

Individual Debtors in Chapter 11 vs. Chapter 13

Many individual debtors will be forced into a Chapter 11 because their debts exceed the debt limitations of Chapter 13. The current debt limits in a Chapter 13 are $394,725 in unsecured debt and $1,184,200 in secured debt. In Chapter 11, there is no debt limitation.

Additionally, to be eligible for a Chapter 13, the debtor must have regular income, sufficiently stable to make payments under a Chapter 13 Plan. There is no income requirement in a Chapter 11. A debtor with assets does not need to be working. The debtor can sell the assets to fund the Chapter 11 Plan.

In a Chapter 13, the debtor makes monthly payments based on his or her disposable income to the Chapter 13 trustee. The trustee then distributes these payments to the debtor’s creditors over the life of the Plan – between 3 and 5 years. The trustee earns up to 10% of the amounts of payments flowing through the Plan.

In a Chapter 11, there generally is no trustee. The debtor becomes a debtor-in-possession (DIP) and a trustee is appointed only if the debtor mismanages things. The debtor must open a DIP bank account, and all money passing through the debtor’s hands must flow through the DIP account.

Instead of making monthly payments based on disposable income, the Chapter 11 debtor must file a monthly operating report with the U.S. Trustee’s Office, listing all income and expenditures. Further, the Chapter 11 debtor must make quarterly payments to the U.S. Trustee based on the monthly expenditures listed in the operating report.

A Chapter 13 Plan must be filed within 14 days after the Petition opens the case, and payments must begin 30 days after the Plan is filed. On the other hand, in a Chapter 11, unless the debtor is a small business debtor, there is no deadline by which a Plan must be filed, and plan payments do not begin until the Plan is confirmed.

Unlike Chapter 13, which sets a 3 to 5-year limit for the duration of a Plan, there is no time limit in Chapter 11 by which a Plan must be completed. This means that mortgages on the primary residence can be paid off, and mortgages on investment properties can be restructured and paid over time while the automatic stay protecting the debtor from collection actions is in place. However, taxes must be paid within the first 5 years of the Plan and domestic support obligations must be paid in full when the Plan is confirmed, or shortly thereafter.

Similarly to a Chapter 13, the individual debtor in a Chapter 11 will receive a discharge of any remaining debts, except for those that are non-dischargeable, once the Plan has been completed.

These are some of the differences between how an individual debtor will fare under the two plans that require discussion with qualified legal counsel.

Need Legal Help?

If you need legal assistance with matters related to Immigration and/or Bankruptcy, contact us today to schedule a consultation.

Considering Bankruptcy?

If you are seriously considering Bankruptcy as an option to get out from under your debt,
contact us today to schedule a consultation.

Translate Language »