subject: The Facts About Chapter 13 Bankruptcy [print this page] Whilst many jobs have been lost during the past year in response to the global economic crisis, many analysts now feel that the world economy is becoming more stable. However, as economies improve, the improvement in the jobs market often lags behind. It is therefore very likely that the number of people claiming bankruptcy will continue to rise.
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.
A chapter 13 bankruptcy has the advantage of being on one's credit rating 2-4 years less than a chapter 7, and no personal or business assets are sold.
A business can therefore trade its way out of its financial problems, without having to sell stock or equipment.
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.
Once a chapter 13 bankruptcy has been agreed and implemented, the individual or business is then protected from their creditors, who may not then chase for payment.
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.
Bankruptcy however, should always be an absolute last resort. All other possible avenues should be thoroughly explored before taking this type of action.
