Category Archives: Chapters of Bankruptcy Code

What are the Differences Between Chapter 13 and Chapter 11 Reorganizations?


There are many differences between reorganizing under Chapter 13 than reorganizing your debts under Chapter 11.  This article discusses some of the basic differences between these chapters of the Bankruptcy Code.  This article does not cover each and every difference or go into great detail about the differences.  For more information about your specific circumstances, please consult an experienced bankruptcy attorney in your jurisdiction for more information.

First of all, why file a chapter 11 reorganization case at all?  Section 109(e) of the Bankruptcy Code has something to say about this.  Only individuals may reorganize under Chapter 13, not corporations.  If you own a corporation the only chapter available to reorganize is Chapter 11.  To be eligible to be a debtor under Chapter 13 you must not have unsecured debts exceeding $360,475 or secured debts exceeding $1,081,400.  If you exceed either of these debt limitations you cannot reorganize under Chapter 13 and can only reorganize your debts by filing a Chapter 11 case.

Another huge difference between the chapters is that creditors in a Chapter 11 get to vote on acceptance or rejection of the proposed plan or reorganization.  Creditors in Chapter 11 that are part of the impaired classes, those creditors whose legal rights are being changed in the plan, get to vote on the plan of reorganization.  The different types of debts are listed as classes, secured debts, priority debts and unsecured debts are all split up into classes.  Each class gets to vote and a class of impaired creditors must accept the plan by a majority vote in number of claims and at least two-thirds in dollar value.  In a Chapter 13 the standing chapter 13 trustee recommends confirmation of the plan and the Court confirms the plan if it meets the requirements for confirmation under Section 1325 of the Bankruptcy Code.  Creditors in a Chapter 13 may object to confirmation of the plan.  The Court can either sustain the objection or overrule the objection and confirm/approve the plan.  Creditors commonly object to a plan because of issues over valuation of collateral, the plan is not possible/feasible or the plan of reorganization was not filed in good faith.

So what happens if creditors reject a Chapter 11 plan of reorganization?  Then the debtor must prove the Chapter 11 plan of reorganization is fair and does not unfairly discriminate between treatments of different classes, is equitable and does not discriminate against the class of creditors that rejected the plan.  If the Court agrees, then the Court can confirm/approve the plan of reorganization and cram the plan down the throats of the rejecting creditors.

What are the Different Chapters of the Bankruptcy Code?


The Bankruptcy Code is found in Title 11 of the United States Code.  There are nine chapters of the Bankruptcy Code (Chapter 1 General Provisions; Chapter 3 Case Administration; Chapter 5 Creditors, the Debtor, and the Estate; Chapter 7 Liquidation; Chapter 9 Adjustment of Debts of a Municipality; Chapter 11 Reorganization; Chapter 12 Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income; Chapter 13 Adjustment of Debts of Individual with Regular Income and Chapter 15 Ancillary and Other Cross-Border Cases.

The first Chapter, General Provisions, consists of twelve sections.  Chapter 1 provides for definitions of the key terms used in the Bankruptcy Code, rules of construction, who may be a debtor and other general guidelines for the administration of bankruptcy cases.  Two of the more important sections are Section 105, Power of Court and Section 109, Who May Be a Debtor.  Section 105 says the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title   . . . . . .  no provision of this  title . . . preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.  Section 105 can be used as a powerful tool to obtain relief from the Bankruptcy Court.  Some have argued that Section 105 has been used to expand the Bankruptcy Court’s power.

The next chapter, Chapter 3 Case Administration, includes sections governing types of bankruptcy cases such as voluntary, joint or involuntary bankruptcy cases.  One of the most important sections is Section 362.  Section 362 provides for the automatic stay.  The automatic stay takes effect as soon as a bankruptcy case is filed.  The automatic stay stops any and all collection actions like repossession, foreclosure and lawsuits.  Section 362 defines the effect of the stay and how it applies to different property and creditors.

Chapter 5, Creditors, the Debtor and the Estate, defines creditor rights, the debtor’s duties and what is the bankruptcy estate and property of the estate.  One of the most important sections in this chapter is Section 523, Exceptions to Discharge.  Section 523 lists the types of debts that are not discharged.  There are a number of debts that have been deemed not dischargeable for public policy reasons or because of how the debt was incurred.  The best example of a debt that is not dischargeable pursuant to Section 523 is debt incurred for willful and malicious injury by the debtor to another entity or to the property of another entity.

Chapter 7, Liquidation, provides for the appointment of a trustee, collection, liquidation and distribution of assets to creditors.  The most common bankruptcy case filed is a no asset Chapter 7 bankruptcy case.  In these cases available exemptions protect all of the bankruptcy filer’s property so there are no assets to be administered in the bankruptcy case.  The trustee assigned to the case still administers the bankruptcy estate; there are just no assets to distribute to creditors.

Chapter 9 of the Bankruptcy Code provides for the Adjustment of Debts of a Municipality.  In the last few years a number of municipalities have made headlines by filing for bankruptcy protection under Chapter 9.  Orange County California, Vallejo California, Harrisburg Pennsylvania and Jefferson County are the most recent and high profile municipalities to file bankruptcy.  States are not allowed to file bankruptcy, but municipalities within a state can be a debtor and seek the reorganization of their debts.

Chapter 11 of the Bankruptcy Code provides for the reorganization of debts for individuals and businesses that have over $360,475 in unsecured debts or $1,081,400 in secured debts.  A Chapter 11 plan of reorganization is proposed and voted on by creditors.

Chapter 12 of the Bankruptcy Code provides for the Adjustment of Debts of a Family Farmer or Fisherman with Regular Income.  Yes, farmers and fisherman have their own section of the Bankruptcy Code.

Chapter 13 provides for the Adjustment of Debts of an Individual with Regular Income.  Chapter 13 allows an individual or small business to reorganize their debts if their unsecured debts are less than $360,475 and less than $1,081,400 in secured debts.  In California these debt limitations are especially harsh.  If you own two or more homes in the Bay Area you can easily have more than $1,081,400 in secured debt.  In Texas you could own 10 houses and still be eligible to be a debtor under Chapter 13 given that home values there are so much less.  One of the main distinctions between reorganizing under Chapter 11 versus Chapter 13 is that the Chapter 13 Plan of reorganization is confirmed or approved by the Bankruptcy Court and not voted on by creditors.

Chapter 15 of the Bankruptcy Code is a little known chapter.  This chapter was created in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act to address the need for more rules regarding the filing of bankruptcy for international companies and foreign courts.  Chapter 15 repeals or replaces Section 304 of the Bankruptcy Code.

For more information about your particular circumstances please contact our experienced bankruptcy attorneys in San Jose or bankruptcy lawyers to find out if bankruptcy is right for you.