How can an Individual Chapter 11 be better and cheaper than Chapter 13?

26 Oct How can an Individual Chapter 11 be better and cheaper than Chapter 13?

How is Chapter 11 better than Chapter 13, and how could a Chapter 11 bankruptcy possibly be cheaper than a Chapter 13?

The first major difference between an Individual Chapter 11 and a typical Chapter 13 is that there is only a small trustee fee in Chapter 11 versus the huge administrative expense imposed by the Chapter 13 trustee. In many jurisdictions, including the Middle District of Florida, that fee is 10%.

For example, let’s assume a debtor has a $1,800 mortgage payment and is 8 months behind in that payment on the date of filing the bankruptcy. In a 60 month bankruptcy plan, the debtor will have to pay the normal monthly mortgage payment plus the past due arrearages of approximately $22,000 (paid at a rate of $367 per month over the 60 months). The combined payment would be $2167.

If the case is filed under Chapter 13, the trustee’s administrative fee would be $216.70 per month on this single item alone. Over the life of the plan, that fee is more than $13,000. Combined with the $4,000 attorney’s fee and costs, the debtor pays $17,000 in fees and costs for this very simple Chapter 13 bankruptcy. Without this fee in Chapter 11 cases, a debtor could actually save money over the filing of a Chapter 13 even if the attorney fee is $10,000 – $15,000.

I purposely used a very simple case to show how easy it is to justify Chapter 11. In future posts, I’ll add some complexity to this example to magnify other savings and advantages in Chapter 11.

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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