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Should I File Chapter 13 or Chapter 11 to Reorganize my Debts?

While chapter 11 is most commonly thought as a “business bankruptcy” and it is a relatively rare chapter of bankruptcy for an individual to file, it is available to individuals (people, not businesses) to restructure their debts.  In that respect, chapter 11 is similar to chapter 13.  However, in nearly every case I have dealt with, chapter 11 is rarely necessary and unduly complicated and expensive.  For example, just consider the filing fees on each type of case.  In every bankruptcy, there is a filing fee that a bankruptcy debtor has to pay to the court for the privilege of filing a bankruptcy.  As of the date I am writing this article, a chapter 13 filing fee is $310 and a chapter 11 filing fee is $1,717!  And neither of those fees includes any of the costs of the attorney. Like the filing fee in chapter 11, the case is also similarly more expensive when it comes to the attorney fees in a case due to the much higher level of complexity involved in chapter 11.  Also, chapter 13 tends to be better suited for many individuals because there are certain protections that exist in chapter 13 that simply do not exist in chapter 11 bankruptcy. One such benefit of chapter 13 is that there is a co-debtor automatic stay.  In all forms of bankruptcy, the automatic stay protects the debtor from creditors once they file bankruptcy.  In chapter 13, there is a similar protection for people who have agreed to become co-debtors with you.  For example, if your grandmother agreed to co-sign on a loan with you for your car and you have fallen behind on payments, so you are going to use a chapter 13 to reorganize your car payment and pay it off over time, then the co-debtor stay protects grandma. Another benefit to chapter 13 is that creditors do not get to vote on whether to confirm your plan, which is exactly what they get to do when you file chapter 11.  As you can guess, convincing a class of creditors to approve a bankruptcy plan for the debtor can be a complicated, time consuming, and costly process. With all that said, chapter 11 continues to exist for one simple reason.  There are some people and businesses that benefit more under chapter 11 than any other chapter.  But determining what chapter is right is the best choice for the debtor is not easy and should only be determined after seeking counsel from a competent bankruptcy lawyer.  Most bankruptcy attorneys in Topeka, myself included, provide free consultations to assist you in determining the best course of action. by Adam Mack


These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!