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Chapter 13 vs. Chapter 11

Posted by attorney Clint Dunaway

There are many similarities and many differences between Chapter 13 and Chapter 11 of bankruptcy. Chapter 13 bankruptcies are available for individuals and sole proprietorships but not corporations. Chapter 11 bankruptcy is available for businesses and individuals with very large amounts of debt.

Why would an individual file a Chapter 11 instead of a Chapter 13? Typically it is because the filer is exceeds the Chapter 13 debts. Currently the debt limits for Secured debt are $1,081,400.00 and $360,475.00 for unsecured debt (please note that these limits are adjusted periodically for inflation). Secured debts connected to some kind of a property. i.e., a home, car, boat, land, etc. These debts are considered “secured" because should you stop making payments on the loan, the lender can seize the property connected to the loan. Unsecured debts are not linked to any kind of property, and include student loans, credit cards, medical bills, and payday loans. These debts are considered “unsecured" because the lender cannot repossess or foreclose a piece of property if a borrower stops making payments.

So for individuals who’ve invested in several pieces of real estate you may not be eligible to file a Chapter 13. For instance if you purchased 5 investment property at $250,000 each, then you have at least $1,250,000 in debt and cannot do the Chapter 13. Likewise, if you are someone who has a large amount of medical bills, credit card debt, student loans, and/or IRS debt then you will not be able to file a Chapter 13 if it totals more than $360,475.00. But don’t worry, if you are an individual who is not eligible for a Chapter 13 you may qualify for a Chapter 7 or Chapter 11 bankruptcy.

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