Chapter 13 Bankruptcy Law Facts
Many commentators now think that the world economic downturn is past its worst point, although busineses are still uncertain as to what the future may hold. Whilst many people have lost their jobs during these difficult times, there is still a lag as the economy improves, so there is little doubt that the number of people claiming bankruptcy will increase.
Bankruptcy is open to both companies and businesses, and the two most common forms of bankruptcy are chapter 7 and chapter 13. Chapter 13 is often preferred by business, as it allows the company to carry on trading, if it is found that it is likely to have a long term future, despite its short term financial difficulties. A chapter 7 banktuptcy on the other hand, means that all assets are liquidated, preventing any form of continued trading.
However, not everyone wants to file under chapter 7 and lose everything, including their credit rating. OK, a credit rating is badly affected by a chapter 13 bankruptcy too, but not as badly as a chapter 13 which stays on ones credit record 2 years less than a chapter 7 bankruptcy.
Because no assets are sold, a business can continue to trade, whilst looking to longer term success.
This is because the bankruptcy court will have agreed what is called a “repayment plan”. This is a schedule of repayment over 3-5 years, depending on the court and agreed with the creditors. The individual or business is then protected from their creditors and can concentrate on getting the business, or the individual’s personal financial affairs, back on track.
Providing the individual or business keeps to the plan, they are protected from their creditors who cannot chase them for payment of debt included in said plan.
Chapter 13 bankruptcy allows businesses to stay in business, and individuals to regain control of their financial affairs, without either having to sell of their personal assets. It also ensures that creditors a remunerated as far as possible, which generally means being paid in full unless the individual or business defaults on the repayment plan, unlike a chapter 7 bankruptcy, where the creditors merely get a proportion of the amount of money raised from the sale of the assets.
Although it all sounds very easy, bankruptcy should be avoided at all costs, as it brings it’s own set of fiancial difficulties later.
Before declaring yourself bankrupt, it’s vital that you consult with professional adviser regarding your financial position. This is because declaring yourself bankrupt has severe consequences for you credit rating and general financial health in later life.
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