Chapter 11 vs Chapter 13: 7 Differences for a Sole Proprietor

A sole proprietor who owes too much for Chapter 13 has already been sorted into Chapter 11, whether or not anyone has said so. The two chapters answer one predicament with different machinery, and the differences begin at the entrance, before any plan is drafted, any trustee is appointed, or any creditor is asked for an opinion.

A proprietor has no entity standing between the shop and the household, so the choice turns on arithmetic, on control, and on how much of the outcome the owner is prepared to let creditors decide.

1. Chapter 13 Has Two Ceilings and Chapter 11 Has None

Section 109(e) admits to Chapter 13 only "an individual with regular income" whose noncontingent, liquidated debts on the filing date fall under two separate lines: under $526,700 unsecured and under $1,580,125 secured, as those figures were adjusted on April 1, 2025 (see the Cornell copy of 11 U.S.C. 109 and its adjustment note). The two tests run separately; a proprietor can pass the secured test and fail the unsecured one in the same afternoon.

Take a hypothetical florist who owes $360,000 across three merchant cash advances signed in her own name, $95,000 on a business line of credit, and $110,000 on cards and a vendor judgment. If all of it is unsecured, the total is $565,000, which is $38,300 over the Chapter 13 line. Whether any advance is secured, and whether a disputed balance counts as "liquidated," are questions for counsel and, if contested, for the court.

Legislation to restore higher limits, the Bankruptcy Threshold Adjustment Act of 2026, passed each chamber of Congress in its own version this year and still awaited final passage in late September 2026. The figure that governs is the one in force on the filing date, and counsel should confirm it that week.

Chapter 11 carries no comparable ceiling for an individual.

2. Only a Person Can Choose Between Them

Chapter 13 is closed to limited liability companies and corporations, because 109(e) speaks only of individuals. The proprietor qualifies because a proprietorship is nothing more than an individual trading under a name.

If the advances now run to an LLC, the owner's Chapter 13 can reach the owner's guaranty and nothing belonging to the company, whose own menu is limited to Chapter 7 or Chapter 11. Owners forget the LLC they formed years ago. The contracts do not.

3. A Standing Trustee in One, the Owner at the Controls in the Other

In Chapter 13, where the United States trustee has appointed a standing trustee for the district, 11 U.S.C. 1302(a) provides that "such individual shall serve as trustee in the case." Plan payments flow through that trustee. The business itself stays with the proprietor: section 1304 treats a self-employed debtor who "incurs trade credit in the production of income" as engaged in business, and permits that debtor to operate it unless the court orders otherwise.

In Chapter 11 there is ordinarily no trustee. The proprietor becomes a debtor in possession, holding the rights and performing most of the duties of a trustee under section 1107(a), and section 1108 lets the business continue. That larger grant of authority arrives with a fiduciary's obligations and monthly operating reports to the United States trustee.

The proprietor keeps the keys under either chapter. What changes is who receives the monthly check, and who has the standing to ask where the rest of the money went.

4. Three to Five Years, Measured Differently

Chapter 13 fixes the length of the plan by reference to income. Under 11 U.S.C. 1322(d), a debtor whose annualized current monthly income is at or above the state median may propose a plan of no longer than five years, and a debtor below the median is held to three years unless the court, for cause, approves a longer period, never beyond five.

Chapter 11 has no such clock. For an individual, the pressure comes from elsewhere: if an unsecured creditor objects, section 1129(a)(15) requires the plan to pay that claim in full or to distribute at least the debtor's projected disposable income over five years (or the plan's term, if longer). The owner also has a period of exclusivity, 120 days after the order for relief under section 1121(b), during which no one else may file a plan.

5. The Price of Admission and the Price of Staying

A Chapter 13 petition costs $313 at filing ($235 plus a $78 administrative fee), and a Chapter 11 petition costs $1,738 ($1,167 plus a $571 administrative fee), according to the federal judiciary's miscellaneous fee schedule and 28 U.S.C. 1930. Neither figure includes counsel.

The recurring charges diverge further. A Chapter 13 standing trustee collects a percentage fee from plan payments, which 28 U.S.C. 586(e) caps at ten percent for a debtor who is not a family farmer; the actual rate is fixed district by district. A Chapter 11 case outside Subchapter V owes quarterly fees to the United States Trustee Program for as long as it stays open: $250 for a quarter with disbursements up to $62,624, and 0.4% of disbursements from $62,625 to $999,999, under the schedule effective April 1, 2026. A proprietor who disburses a hypothetical $180,000 in a quarter would owe $720 for that quarter alone.

6. Creditors Vote in Chapter 11 and Object in Chapter 13

No creditor casts a ballot on a Chapter 13 plan. A creditor may object, and the court then applies the tests in section 1325: each unsecured claim must receive at least what it would have received in a Chapter 7 liquidation, and, on an objection by the trustee or an unsecured creditor, the plan must either pay that claim in full or commit all of the debtor's projected disposable income for the applicable period. A funder can complain. It cannot veto.

Chapter 11 puts the question to the creditors in classes. Under section 1126(c), a class accepts when creditors holding at least two thirds in amount and more than one half in number of the claims that actually voted say yes. Under section 1129(a)(10), at least one impaired class must accept without counting insiders.

The arithmetic is unkind to the owner who has stacked advances. Suppose the florist's unsecured class holds $450,000 in claims, all of which vote, and one funder holds $200,000 of it. If that funder rejects, the most the class can register in favor is $250,000, about 55.6% of the amount voting, which falls short of two thirds. One creditor has decided the class. (The owner may believe the balance is inflated by fees the contract never justified, and may be right, but the claim votes at its allowed amount, and allowance is a separate fight with its own expense.)

What remains is cramdown. Section 1129(b) permits confirmation over a dissenting class if the plan is fair and equitable and does not discriminate unfairly, and for unsecured creditors that phrase carries the absolute priority rule: the dissenting class is paid in full, or holders junior to it keep nothing on account of their junior interests. Individual debtors have a statutory exception that counsel will explain, though it tends to narrow rather than to rescue.

A proprietor choosing between the chapters is choosing between a judge applying fixed tests and a negotiation conducted under the shadow of a vote.

7. Subchapter V Sits Between Them

An individual engaged in business can elect Subchapter V of Chapter 11 if aggregate noncontingent, liquidated debts are no more than $3,424,000 (the figure in effect since April 1, 2025) and at least half arose from commercial or business activity. The same pending legislation would raise that ceiling if enacted, and counsel should confirm the number in force on the filing date.

The subchapter borrows from both parents. Only the debtor may file a plan, due within 90 days of the order for relief. No quarterly fee accrues. A trustee is appointed to help the parties reach a consensual plan rather than to take the business away, and if consent fails, the court may confirm a plan that commits three to five years of projected disposable income without the absolute priority rule. Owners notice that last provision, because it lets a proprietor keep the business without first paying a dissenting unsecured class in full.

Where a Settlement Conversation Fits

Delancey Street, a negotiator of business debt (merchant cash advances above all), is not a law firm; it files no petitions and has no view on which chapter a proprietor should choose. The first conversation costs nothing and stays confidential, and legal questions go to attorneys licensed independently of the company. A proprietor facing a levy, a pending judgment, or debts well past every ceiling described here needs bankruptcy counsel first, and should be told so. For others, a negotiated resolution of one or two advances is a question worth pricing before the petition, provided counsel has reviewed how payments made in the months before a filing could later be examined.

The chapters were drafted for different debtors, and the proprietor fits both only because the law declines to separate the person from the shop.