The purpose of a chapter 11 bankruptcy is to allow a business a limited amount of time free from creditors collection efforts to restructure its finances so it may continue to operate in a normal fashion under a court approved "plan". Creditors of a business filing a chapter 11 vote on the plan, and the plan must be approved by the court. A business may choose to liquidate under this type of bankruptcy also. If a business obtains approval from the court for its plan, all pre-bankruptcy debts will be discharged. A business will not receive a discharge if it simply liquidates its assets under a plan. Advantages of a chapter 11 is that the business may retain control of its property during the bankruptcy and can deal with all of the debts.



Individual debtors may also choose to file a chapter 11, however this type of bankruptcy is complicated and there may be advantages to filing under a different chapter. An individual should consult with an attorney before making the decision to file a chapter 11. Generally, you may file a chapter 11 petition anytime after a previous bankruptcy filing.

A chapter 13 bankruptcy provides less leeway than chapter 11 bankruptcies, but has the advantage of earlier finalization. Chapter 13 is called "debt adjustment." It requires a debtor to file a plan to pay debts (or parts of debts) from current income. With a chapter 13 bankruptcy filing, a debtor must promptly file a repayment plan and obtain the court's approval of the plan. Any creditor may object to the plan. The debtor, along with the appointed trustee, must work out any objections to the plan before the court will approve it. The typical repayment time of chapter 13 plan is 3 to 5 years. The debtor makes regular payments to the trustee and the trustee then distributes these monies to creditors according to the terms of the plan. After completion of a plan, the debts listed in the bankruptcy are discharged (again with some exceptions) and the debtor is no longer obligated to pay them. You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.

A chapter 12 bankruptcy was created to help family farmers who need to reorganize their debts, while keeping their land. The rules of a chapter 12 bankruptcy are modeled closely after those of a chapter 13. The purpose of this type of bankruptcy is to assist farmers who have the potential to reorganize their finances, but at the same time to allow them relief from a heavy debt burden. Farmers pay their creditors what is deemed reasonable. A trustee is appointed, but the farmer usually remains in possession of the farm while formulating a plan. A chapter 12 bankruptcy, like a chapter 13 bankruptcy, normally proceeds more quickly than a chapter 11 and may have the added attraction of being less expensive.