The main difference between Chapter 11 and Chapter 13 is that a Chapter 13 bankruptcy requires that the debtor pay his or her debts within five years. On the other hand, Chapter 11 allows the filer to extend the five-year period unlike Chapter 13.
Another difference is how much the Debtor has to pay creditors. In a Chapter 13 case, the Debtor will have to pay debts that qualify as Priority Debts (such as certain taxes and family support debts) 100%, but will not necessarily have to pay unsecured creditors in full. The Debtor is required to submit all of his/her disposable income for a period of 3-5 years.
Whatever is left over after payment of priority expenses and expenses of administration (attorneys’ fees and trustee fees) is paid on a pro-rata basis to unsecured creditors. In many Chapter 13 cases, the unsecured creditors will receive little to no payments on their claims.
In a standard Chapter 11 case, something called the “Absolute Priority Rule” requires that if the Debtor (or the Debtor’s owners) want to retain property of the estate, they may be required to pay unsecured creditors 100% of their claims over time. The time period may be more than five years if the Court finds that to be reasonable.
In some cases, Debtors may be able to avoid that requirement by contributing new value to the estate, but the new value has to be substantial enough to warrant the Debtor not having to pay the unsecured creditors while retaining valuable assets.
About the Finkel Law Group
Finkel Law Group, with offices in San Francisco and Oakland, has more than 40 of experience assisting our clients navigate federal bankruptcy laws and state insolvency statutes. Our attorneys have the experience and expertise needed to help you and your management team successfully complete the liquidation or reorganization of your corporation, partnership or limited liability company.
When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with the bankruptcy and reorganization issues confronting your company please contact us at (415) 252-9600, (510) 344-6601, or info@finkellawgroup.com to speak with one of our attorneys about your matter for a cost-free consultation.