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.
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.
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.
The purpose of a chapter 13 bankruptcy is to recover as much, if not all, of the outstanding debt owed to creditors. This is done by the business or individual agreeing to a “repayment plan” that must be adhered to, over a 3-5 year period. This plan is implemented with the agreement of the creditors, and allows the business to move on.
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.
Before claiming any sort of bankruptcy however, proper financial advice should be sought to try and avoid this drastic step.
Before declaring yourself bankrupt, it’s vital that you consult with professional adviser concerning your financial position. This is because declaring yourself bankrupt has severe implications for you credit rating and general financial position in later life.