Why Chapter 11 Bankruptcy Might Be A Better Alternative Than Chapter 13

Chapter 13 bankruptcy is designed to prevent the end of a small company that is listed as a proprietorship. Its effectiveness is highest when the company is dealing with a large proportion of non-guaranteed debt, and a small proportion of guaranteed debt. The latter must be reimbursed in no more than 5 years. Before filing for chapter 13 bankruptcy, consider the information below—you might find that this bankruptcy option isn't optimal for your small business.

Which restrictions is chapter 13 bankruptcy subject to?

These typically include but aren't limited to:

  • The company barely has the time to rearrange internally
  • The submitted plan cannot last beyond a given time period

One of the biggest drawbacks of chapter 13 bankruptcy is the fact that you are barely given time to define a new financial strategy to reimburse your creditors. Indeed, you'll only have 30 days to make the first payment after submitting your chapter 13 plan. Unless your small business has a well-experienced finance team, you'll hardly be able to come up with a sound strategy in such a short amount of time.

Five years is the maximum number of years that you'll be given to repay your debt under chapter 13, which doesn't really allow you to tackle some of the challenges that must be addressed to make this debt relief option work.

Why is chapter 11 a better alternative?

One of the most commonly cited disadvantages of chapter 11 bankruptcy is its cost. Fortunately, it can be cut in a variety of ways, which makes this debt relief strategy a more versatile alternative than chapter 13. Two ways the cost of a business chapter 11 are reduced are:

  • You may request and be approved for a discharge  
  • The fees associated with the discharge are no longer prohibitive

Without a discharge, you would have to be confronted by a group of creditors trying to collect their money. Having a discharge approved is very important from a financial point of view because you no longer have to generate quarterly operating reports, and thus pay the related fees as long as the case is still ongoing. For a business already dealing with monetary issues, such savings are a breeze.

Chapter 13 and 11 feature benefits that must be carefully considered before filing for business bankruptcy. Speaking with a bankruptcy attorney like Brackett & Strunk LLC will help you find out which debt relief option is best for you.