The USA legal system has given a lot of stress on bankruptcy norms. There are several chapters under the Bankruptcy Code that elaborate on the various bankruptcy cases. Chapter 7, 11 and 13 are the three chapters under the code. This article is an attempt to understand Chapter 11 and Chapter 13 and see how they are similar yet different from each other.
Chapter 11 bankruptcy states that a corporate debtor can continue to stay in the business by restructuring his debt. The restructuring plan has to be creditor-approved and court-confirmed. Cases falling under Chapter 11 are also known as ‘reorganization bankruptcy'. This is so as the debtor is allowed to run his business while proposing a repayment plan to the bankruptcy court.
Under the Bankruptcy Code, the Chapter 13 bankruptcy states that an individual can enter a court-approved plan of repayment in case of accumulated debts. In Chapter 13, the individual is permitted to keep his property and yet repay his debt according to a court-outlined plan lasting three to five years. An individual needs to have a regular income in order to fall under the Chapter 13 bankruptcy. It is also called a wage earner’s plan.
There are several similarities between Chapter 11 and Chapter 13 and it is not uncommon for people to get confused between the two. In both the cases, the debtor is allowed to continue with his business or his regular job while proposing a financial restructuring plan. Under both the bankruptcy chapters, debtors are allowed to retain their property which they can use for running their business if required. Both the chapters also allows debtors to sell assets they do not need, modify payment terms and try to eliminate obligations they are unable to pay over the repayment term period.
While there are several similarities between the two chapters, there is one basic criterion which differentiates between the two. Here we are talking about divorce obligations. While submitting the restructuring plan under any of the two chapters, debtors cannot discharge their support obligations, be it for child support or spouse support. However, Chapter 13 allows non-support obligations to be discharged. A property settlement case can be a case of non-support obligation that can be discharged under Chapter 13.
While in both the chapters, the debtor and the debtor's attorney plan the debt repayment plan, under Chapter 11, creditors cast votes to determine whether the proposed plan is accepted or not. However, under Chapter 13, the creditors have to accept the plan if it meets all the legal regulations. In case the Chapter 11 repayment plan is rejected, the debtor has to come up with a new plan. Even then if negotiations fail and the creditors refuse to accept the plan, the business will have to file a new bankruptcy case under Chapter 7 or have the probability of getting the case dismissed.
1 comments:
I want to know all the information about chapter 13 bankruptcy. And I'm glad because you shared what is the difference between chapter 7 and chapter 13 bankruptcy here. By the way, I just want to say thanks for sharing this because I learned a lots.
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