How Does Chapter 13 Bankruptcy Differ From Chapter 11 Bankruptcy?
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Chapter 11 is Bankruptcy Code for Businesses
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Chapter 11 is a section of the U.S. bankruptcy code that allows businesses to undergo financial reorganization in the face of being unable to pay back creditors. Any type of business can file for Chapter 11 protection, but most often it is used by large corporations whose assets and services within the economy are deemed more valuable under reorganization or acquisition than the sale of all its assets. An example of a Chapter 11 filing was Delta Air Lines in 2005; in the case of the large airline, it was deemed more beneficial to leave it in operation and restructure it rather than get rid of the airline and leave many travelers without access to flights until a competitor could take its place.
Chapter 13 Covers Individuals
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Chapter 13 of the bankruptcy code is an analogous section to Chapter 11: it covers the reorganization of finances for individuals rather than businesses. When an individual files for chapter 13 protection, a federal court oversees the restructuring and allows the filer a reprieve against creditors as well as protection against foreclosure, but the filer is not completely exonerated from his obligations.
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Chapter 7 Contrasts With 11 and 13
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In contrast to Chapters 11 and 13, Chapter 7 calls for the liquidation of assets which are distributed to creditors. After this takes place, the filer is freed of commercial debt but will have severely impaired credit. Among smaller businesses and individuals, Chapter 7 bankruptcy is the most common, as restructuring will usually not offer sufficient benefit to forgo debt forgiveness.
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