McNamee Hosea News & Press


What is the difference between a Personal Bankruptcy and a Business Bankruptcy?

Craig M. Palik

When it comes to navigating the Bankruptcy process, one main question that often arises is “What is the difference between a Chapter 7 Bankruptcy and a Chapter 11 Bankruptcy?” The simplest explanation is that a Chapter 7 Bankruptcy is a Personal Bankruptcy filing, where as a Chapter 11 Bankruptcy is more commonly referred to as a Business Bankruptcy filing.  In addition, a Chapter 7 case is referred to as liquidation bankruptcy, meaning that certain assets will be liquidated and your entire debt will be discharged. In comparison, a Chapter 11 case is a reorganization bankruptcy where a company can reorganize and restructure its debts in an effort to remain operational. However, a Chapter 11 Case can also be used by individuals to help regain control of their finances, should they not qualify for a Chapter 7 filing.

Here are some other additional differences between a Chapter 7 and Chapter 11 Bankruptcy filing:

  • A Chapter 11 filing allows a debtor that does not qualify under means testing in Chapter 7 or debt limits imposed under Chapter 13, a bankruptcy option to still file for Bankruptcy.
  • Chapter 11 is not only for corporations but can be used by individual debtors as well.
  • The person or entity filing bankruptcy remains in control of his/her/its assets during a Chapter 11 Case; there is no trustee appointed, except in unusual circumstances.
  • There is a requirement to propose and approve a plan in Chapter 11 that creditors have to vote on.  In the absence of an ability to pay all debts in full on the effective date of the plan, at least one “impaired” class of creditors must vote in favor of the plan.  If the vote among the classes identified in the plan is not unanimous, it is up to the judge to determine whether it is fair and reasonable.
  • A plan of reorganization in Chapter 11 has basic legal requirements in terms of what it can or has to provide, but does permit a substantial amount of flexibility in restructuring debt that is tailored to the needs of the case.
  • Chapter 11 is far more costly than Chapter 7.

If you are considering filing a personal or business bankruptcy, it is important that you are filing under the best chapter for your individual circumstances, regardless of whether you are filing for a business. While the Chapter 11 option is far more complicated, it may be the best option for individuals and businesses to restructure their debt in the most beneficial manner while they continue operations of their company.

Our team can help prepare the best strategy for your business or individuals circumstances and be your advocate throughout the filing process. If you are considering filing a Chapter 11 Bankruptcy, contact one of our seasoned Bankruptcy attorneys today.