Bond Law Office
Chapter 11 vs. Chapter 12
vs. Chapter 13 Bankruptcy
In 2020, there were 7,545 bankruptcy filings in the state of Arkansas. Most filers took advantage of Chapter 13 of the bankruptcy code, followed closely by those using Chapter 7. Chapter 11 bankruptcy and other filings totaled just 44. The statistics were compiled by the American Bankruptcy Institute (ABI) using the most recently available data.
The bankruptcy code allows individuals to make a fresh start financially. Filers can choose among various options depending on the extent and nature of their debts. Chapter 7 is a liquidation plan. Nonexempt assets are sold to satisfy claims by creditors. Chapters 11, 12, and 13 are variations of reorganization through bankruptcy. Most if not all assets can be retained, while debt obligations are honored through a repayment plan.
If your debts are piling up, the creditors are nagging you by phone, text, and email, or you’re juggling minimum payments in hopes of surviving, bankruptcy may be the solution to your difficulties.
Though it has a bad connotation, bankruptcy truly does provide a fresh start. If you qualify for Chapter 11, 12, or 13, you also may be able to keep all your possessions, or at least the ones most important to you including your home, cars, and other possessions.
If you’re located in or around Fayetteville or Fort Smith, Arkansas, or anywhere in the Arkansas River Valley, contact the Bond Law Office to discuss the bankruptcy options that will allow you to reorganize, retain your possessions, and move forward with your debts under control. With more than 35 years of experience in bankruptcy and debt resolution, we are here to help.
Chapter 11 Bankruptcy
Similar to Chapter 13, a Chapter 11 bankruptcy filing involves a reorganization plan. Though it is often used by corporations, individuals with high levels of debt can also use Chapter 11. In fact, nearly a third of all Chapter 11 filings nationwide are by individuals.
Unlike Chapter 13, Chapter 11 places no limit on debts, nor does it require the individual to have a stable income as it does under Chapter 13. You can file for Chapter 11 with no income. Under both plans, the filer must propose a repayment plan that may or may not include the sale of some assets. When utilizing reorganization bankruptcy, secured debts must be honored or refinanced, if possible, while unsecured obligations can sometimes be reduced as low as to pennies on the dollar or even forgiven. The creditors must receive at least what they would under a Chapter 7 liquidation plan.
In Chapter 11 as opposed to Chapter 13, the debtor is left more on their own. Not only does the filer have to prepare the plan, but they also must present it to a meeting of creditors. If the creditors disapprove, the bankruptcy court may order a new plan or convert the filing to a Chapter 7 liquidation, so the stakes are high.
Chapter 11 proceedings are often lengthy, but some small businesses can qualify under Chapter 11, Subchapter V, which allows the court to approve the reorganization plan without creditor approval. Under any Chapter 11 filing, moreover, any business can continue operating as the “debtor in possession” until all debts are resolved. This allows the business to get back on its feet and survive as an ongoing enterprise.
Chapter 12 Bankruptcy
A Chapter 12 filing is extremely limited. Chapter 12 debtors must be engaged in farming or a commercial fishing operation. Farmers cannot have debts exceeding $4,253,150 and fishermen are limited to $1,924,550 in debts.
Like Chapter 13, the filer must have what is termed “regular annual income,” even if it’s seasonal. They must derive 50 percent of their gross income from their farming or fishing operations. Farmers must owe at least 50 percent of their debts on their farming operations. Fishing operations must have 80 percent of their debts tied to their business. Both debt loads exclude mortgages.
Like both a Chapter 11 and Chapter 13 filing, the debtor must propose a reorganization plan to pay off all debts within three years, or sooner if possible. As part of the plan, debts can be reduced or written off, but the court must “confirm” the plan for it to take effect. The court can also extend the repayment period for up to five years if necessary.
One of the major advantages of Chapter 12 is a “cram down” provision allowing the debtor to resolve debts for obligations like farm mortgages and boat loans by paying the creditor only the value of the collateral pledged for the loan. The remaining balance will revert to unsecured debt, which can be reduced or written off in the reorganization plan.
Chapter 13 Bankruptcy
Chapter 13 is the most common type of filing. Often called “the wage-earners plan,” Chapter 13 allows individuals and families with stable incomes to reduce their debt loans to manageable levels and pay off all obligations within three to five years.
Chapter 13 allows the debtor to retain all possessions so long as they continue to make payments on them. If they are behind on a mortgage or car note, for instance, the arrears (overdue) amount can be included in the repayment plan to be satisfied within the agreed-upon time period. Of course, normal mortgage and car payments will still have to be made on time. Only the arrears amount can be reorganized.
Though the debtor, as in Chapters 11 and 12, is responsible for drafting the reorganization plan, there is still a meeting of creditors, where objections can be raised. There is also a bankruptcy trustee assigned to the case. The repayment money must be sent or assigned to the trustee, who will then honor the repayment terms. Discharge from bankruptcy does not happen until the repayment plan has been fully met.
The major advantage of Chapter 13 is that the debtor can continue living almost exactly as they did before filing, but they must devote “disposable income” to settling debts.
Understanding Automatic Stay Under Each Chapter
What Chapters 11, 12, and 13 have in common is what is called the “automatic stay.” The stay puts a hold on all debt collections, repossessions, and foreclosures, though the halt can be temporary. A mortgage holder, for instance, can petition the court to proceed with foreclosure. The stay, however, gives the debtor time to compose a reorganization plan to save property and assets as much as possible.
Work with An Experienced Bankruptcy Attorney
This brief introduction of three of the bankruptcy code’s options for reorganizing your debts doesn’t include all the complexities that filing with the court and then creating a repayment plan entails.
You truly need the help of an experienced bankruptcy attorney to meet all the requirements. If you propose a plan that doesn’t satisfy the creditors or the court, you’re going to be back at ground zero, or be forced to liquidate. Attending a creditors’ meeting can also be a challenging experience without an attorney to help you meet any objections.
The bankruptcy attorneys at The Bond Law Office stand ready to help you understand the requirements of each type of reorganization filing, so you can decide which one is best for you. We can also assist you in assembling and completing the documents required and then stand side by side with you throughout the bankruptcy proceedings.
If you live in or around Fayetteville or Fort Smith, Arkansas, contact The Bond Law Office whenever debts threaten your lifestyle and livelihood. We can guide you toward a solution and then see you through to a fresh start. Call today for a free consultation.