Chapter 11 or Chapter 13: What is Best For a Small Business?

  • Chapter 11 or Chapter 13

Chapter 11 or Chapter 13: What is Best For a Small Business?

Small businesses, when comes under acute pressure of financial liabilities, do not have many options with them. Filing for bankruptcy can be the only option if you had like to revive your small business or wrap up the same. Chapter 7 bankruptcy will lead to winding up of the small business while Chapter 11 or Chapter 13 (if qualified) can help you in keeping the business running. To learn more about Chapter 7 and its benefits, log on to

How does Chapter 11 or Chapter 13 help?

The concept or logic used in Chapter 11 or Chapter 13 is similar. They deal with the restructuring of business/individual debt in order to make the payout more practical and feasible for all parties involved. Some key benefits of this concept can be listed as follows-

  • Allows for business continuity by retaining most business assets
  • Helps you buy time to settle the crisis, extremely beneficial if the business has been struck with some temporary obstacles
  • Helps in arriving at a negotiated agreement with the secured lenders
  • Helps in releasing some of the debts, especially non-priority unsecured debts that cannot be paid of during the length of the proposed repayment plan

Eligibility and benefits

In comparison, if eligible, Chapter 13 is always a better option. Most small business owners especially sole proprietors are eligible for Chapter 13 and opt it straight away even before evaluating Chapter 11. Chapter 13 is less expensive and less complicated compared to Chapter 11, which makes it a straight choice. Eligibility criterions for Chapter 13 are listed as follows-

  • As discussed earlier any individual who has a sole proprietorship is eligible for Chapter 13.
  • In certain cases, based on case to case scenarios, small enterprises below the debt threshold can be facilitated under Chapter 13.
  • This, however, is completely in discretion of the bankruptcy court and is pretty rare.
  • If you are a sole proprietor and have debts below the threshold, you would not have to worry about the rarest of rare scenarios.

Unlike Chapter 13, Chapter 11 does not have any eligibility criterion. Anyone can usually file under Chapter 11 for bankruptcy. Individuals, corporations, small businesses, partnerships, etc. There isn’t any debt threshold either. It is a sort of blanket bankruptcy chapter that is slightly more expensive and complicated than other alternatives.

Advantages of Chapter 11

  • The first advantage of Chapter 11 is with respect to the modification in terms with the secured lenders. This negotiation and change in terms make it more likely for a business to retain its assets and function well in order to recover from the state of bankruptcy.
  • The usual concept of discharge or release of debt occurs only when the payment plan has ended. The payment may vary as per disposable income in Chapter 13, which means if the income increases over the duration of payment’s plan, you might end up paying more and have fewer debts discharged or released. The debt in the case of Chapter 11 bankruptcy, is released with the start of the payment plan. Once, the payment plan has been approved, the unpayable debt as per the payment plan is released.
  • The cost or commission towards a bankruptcy trustee can be saved when using Chapter 11. As per laws, bankruptcy trustee appointment is optional and is usually appointed only with respect fraudulent or mass mismanagement cases.

Advantages of Chapter 13

  • Unlike Chapter 11, the tenure of repayment is limited to 5 years under Chapter 13. If the secured debts and disposable income fail to meet during the 5 years, a small business might have to lose some of its assets during the course Chapter 13 bankruptcy.
  • The liability to turnover disposable income irrespective of the payment plan obligations, lower debt release percentages and compulsory appointment of a bankruptcy trustee are some disadvantages of Chapter 13. However, in spite of all these, the Chapter 13 bankruptcy Los Angeles process tends to be quicker and cheaper compared to Chapter
  • The making and approval of payment plan is a lot of quicker compared to Chapter 11

To know more about eligibility, possibilities and best roundabouts for your small business organization, reach out to some of the vastly skilled and experienced attorneys@ 888-297-6203.