The Chapter 13 Bankruptcy Laws
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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.
Of all the types of bankruptcy available, chapters 7 and 13 are the most common. Whilst an individual may prefer to file under chapter 7 and thus, after the sale of all their assets, emerge debt free in many cases, some businesses prefer to file under chapter 13, which, if agreed with the court, allows the company to continue trading with no sale of assets. This is used when a business has short term financial problems, but the longer term future looks more promising.
By filing under chapter 13, one's credit rating, although severely damaged, is not as badly damaged as under a chapter 7 filing, and no personal or business assets are lost.
The point of a chapter 13 bankruptcy is that a business may be struggling to make its financial commitments, but can perhaps see that things will improve in the short term. By filing under chapter 13, no assets are sold, and in the case of a business, it can keep trading.
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.
As long as the repayment plan is adhered to by the individual or business, the creditors may not pester the business or individual for payment.
It used to be that people and businesses would file for chapter 7 as an "easy option" to become debt free in one fell swoop. However, a means test is now used to ensure that anyone who can afford to repay their debts, with a little reorganisation of that debt, does so. If it is found that they can, then they have to enter a repayment plan under a chapter 7 filing.
Bankruptcy however, should always be an absolute last resort. All other possible avenues should be thoroughly explored before taking this type of action.
Article Source: Articlelogy.com
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