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.
Both businesses and private individuals file for bankruptcy, and there are a number of types of bankruptcy, called “chapters” that they can both file under. One of these is called “Chapter 13″. This is often used by a business that does not want to go into liquidation, but wants to trade its way out of its financial problems. For example, filing under a chapter 7 bankruptcy means that all the assets are sold off to pay the debtors, and any outstanding debt is then written off (there are some exceptions), allowing the business or individual a “clean slate”.
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.
A business can therefore trade its way out of its financial problems, without having to sell stock or equipment.
Unlike a chapter 7 bankruptcy, chapter 13 is basically a repayment plan, worked out by the court and with the agreement of the creditors, which aims to repay outstanding debts by rescheduling them over a 3-5 year period. Conditions can seem a little harsh, but the business stays afloat and looks forward to better times after the repayment period has been completed.
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.
Anyone who applies for a chapter 7 bankruptcy has to undergo a means test. This is to make certain that they do not have sufficient income to repay their debts in full over time. If they do, then they are forced into a chapter 13 bankruptcy, in order to repay their debt over time.
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 regarding your financial position. This is because declaring yourself bankrupt has serious implications for you credit score and general financial position in later years.
