Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a delayed “fresh start” bankruptcy. For those individuals who cannot qualify for a Chapter 7 , they may qualify for Chapter 13. Only individuals can file a Chapter 13 bankruptcy, corporations and partnerships are not “individuals.” However, a sole proprietorship business may qualify. As of the filing date, the debtor must owe less than $383,175 of liquidated, non-contingent unsecured debts, and less than $1,149,525 of liquidated, non-contingent secured debts. See Chapter 13 Bankruptcy Basics .

Chapter 13 permits you to reorganize your debt and wipe out some of the debt which you cannot afford to pay. The most important thing about a Chapter 13 is that you can keep your real property and all your assets.

stamp approved debt settlement While the repayment plan depends on your Regular Income, Frazee Law Group has been able to organize repayment of your debt in such a manner that if you have insufficient income, you may be able to secure a family contribution to allow you to get back on your feet. Regular Income may come from any legitimate source – e.g., wages, profits from self-employment, rents and investment income, social security benefits, retirement benefits, unemployment compensation, and workers’ compensation awards.

Foreclosure and Chapter 13

The filing of a Chapter 13 bankruptcy will stop the foreclosure sale and allow the debtor 3 to 5 years to repay all the arrears. In addition, you may be able to strip the second and/or third deed of trust on your home, depending on the value of your home. See Lien Stripping in Chapter 13 Bankruptcy .

Some individuals and small business owners file Chapter 13 because they can only afford to repay some, but not all of their debt. Rather than wiping out all of their debts in Chapter 7, Chapter 13 allows them to reorganize and pay a certain percentage of their debt over a period of 3 to 5 years. The unpaid balance is discharged after the payment plan is completed. The Chapter 13 proceeding is more complex than a Chapter 7 and that is why attorneys must charge more for a Chapter 13.

Chapter 13 Compared to Small Business Reorganization Act

Why Chapter 13 is not a good fit for many small businesses.

Chapter 13 bankruptcy is not an option for everyone and there are reasons why a small business should opt to file a Chapter 11 under the Small Business Reorganization Act (SBRA) . The SBRA is a new addition to the U.S. Bankruptcy Code that fills a much-needed gap for debtors caught between Chapter 11  and Chapter 13. Corporations are not eligible to file under Chapter 13, so any small businesses that are corporations would need to file under Chapter 11 of the Bankruptcy Code. Even individuals that might otherwise qualify for Chapter 13 should consider filing under the SBRA if they operate a small business under a DBA.

Advantages of filing under the Small Business Reorganization Act.

One advantage of filing under the Small Business Reorganization Act (SBRA) is that the debt limit is much higher than it is under a Chapter 13 bankruptcy. Under the SBRA the debt limit is $2,725,625 of secured and unsecured debt combined, whereas the debt limit for a Chapter 13 is $394,725 unsecured debt and $1,184,200 secured debt. The other big advantage to filing under the SBRA is the ability to modify the rights of a secured creditor with a lien on your principal residence. In Chapter 13, you are prohibited from modifying the rights of a secured creditor with a lien on your principal residence unless the lien is completely unsecured. Under the SBRA, if you took out a mortgage on your residence to help out your small business, you can potentially reduce the principal balance and interest rate on that loan.

Differences between Chapter 13 and Chapter 11 under the Small Business Reorganization Act

What is the filing fee?

Chapter 13

$310.

Chapter 11 under the SBRA

$1,717.
What is the debt limit?

Chapter 13

Debt limit of $394,725 unsecured debt and $1,184,200 secured debt.

Chapter 11 under the SBRA

Debt limit of $2,725,625 secured and unsecured combined.
Who may file?

Chapter 13

Only individuals with a steady income.

Chapter 11 under the SBRA

Individuals or corporations.
What is the deadline to file a plan?

Chapter 13

Within 14 days of filing the petition unless extended by the court.

Chapter 11 under the SBRA

Within 90 days of filing the petition unless extended by the court.
What are the requirments for drafting the plan?

Chapter 13

Must use court approved form.

Chapter 11 under the SBRA

Must include information usually found in a Chapter 11 disclosure statement such as a brief history of the business operations, a liquidation analysis and a projection of the debtor’s ability to make payments under the proposed plan.
What are the timing of plan payments?

Chapter 13

First plan payment due 30 days after filing the petition.

Chapter 11 under the SBRA

First plan payment due after plan confirmation.
Can you modify the rights of a secured creditor with a lien on the principal residence?

Chapter 13

Only if the lien is completely unsecured.

Chapter 11 under the SBRA

Yes, if the “new value” received from the loan was not used primarily to acquire the residence and was used primarily in connection with the small business.
Is a status conference needed?

Chapter 13

No status conference helds.

Chapter 11 under the SBRA

Status conference held within 60 days of filing the petition.