Chapter 11 Bankruptcy vs. Chapter 13 Bankruptcy: A Clear Comparison for Individuals & Small Businesses

Choosing between chapter 11 vs chapter 13 bankruptcy can feel overwhelming. This guide breaks down the difference between Chapter 11 and 13 bankruptcy in plain language—so you can make a calm, informed decision.

1. Core Differences

• Chapter 11 is often referred to as "reorganization" bankruptcy; it's for businesses (or individuals with significant debt/assets) that want to stay operational while repaying creditors under a court-approved plan.

• Chapter 13 is for individuals with a steady income who want to catch up on debts (like mortgage arrears or car loans) using a structured repayment plan.

2. Who Typically Uses Each

• Chapter 11:

  • Small to mid-sized businesses

  • Individuals with high debt or asset complexity

  • Those aiming to restructure operations or maintain control

• Chapter 13:

  • Single individuals or families with consistent income

  • Homeowners behind on mortgage or car payments

  • Those with debt under federal limits (~$2.9M unsecured, ~$4.3M secured)

3. How Debt Repayment Works

Chapter 11

1. Submit a detailed reorganization plan (listing assets, debts, repayment proposals).

2. Creditors vote on the plan.

3. Professional oversight is common.

4. Make payments according to the approved plan, typically over 3–5 years (or longer in complex cases).

Chapter 13

1. File a 3–5 year repayment plan based on income vs. expenses.

2. Pay a trustee who distributes funds to creditors.

3. You generally retain property (such as a house or car) if payments are current.

4. After completing the plan, remaining eligible debts are discharged.

4. Pros and Cons

Chapter 11

Pros:

• Keeps businesses running

• Can renegotiate contracts or leases

• No debt limits

• Can cram down secured debts if statutory conditions are met

Cons:

• Expensive (legal and court fees)

• Complex and highly regulated

• Creditors have strong oversight and voting power

Chapter 13

Pros:

• Generally faster & cheaper than Chapter 11

• No need to liquidate assets

• Can consolidate multiple debts into one plan

• Penalties/fees may be reduced or wiped out

Cons:

• Strict debt ceilings

• Income stability required

• The plan must be adhered to strictly; missing payments can lead to dismissal.

5. Which One Fits You?

Ask yourself:

• Are you running a business or have deep, complex debt? → Chapter 11

• Are you an individual with a steady paycheck who needs to catch up? → Chapter 13

• Are you close to or above federal debt limits ($2.9 M unsecured / $4.3 M secured)? → Chapter 11

• Can you stick to a strict 3–5 year plan? → Chapter 13 may be simpler

Final Thoughts

Neither route is "easy,” but both offer a structured path to financial recovery:

• Use Chapter 11 if complexity and high debt demand flexibility and restructuring.

• Choose Chapter 13 if you're an individual with income who wants a clear repayment plan without losing everything.

Try Goat Answer’s Free Bankruptcy Advisor

Still unsure which path is right for you? Goat Answer’s free Bankruptcy Advisor walks you through key questions and scenarios to suggest whether Chapter 11 or 13 suits your situation best. No pressure, just personalized guidance you can trust.

Take control of your financial future today.