Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Procedures

Bankruptcy is a financial state that applies to individuals and organizations alike, when they are unable to pay their creditors. Bankruptcy can be declared two ways. In most cases the debtor actually declares that he/she is bankrupt. In a way smaller portion of the cases the creditor requests it.

The purpose of this legal jungle is to give debtors another chance. Being in debt is not always one's own fault, if you look at companies closer you will see that a tiny percent of companies today don't have debts. Even Microsoft and Google all have debts. When smaller companies try to steer their "boat" in narrow waters they may find themselves lost and a small tip will overthrow the crew. So being able to file for bankruptcy will not only give a chance to repay debts but also hold a promise for a new start.

Chapter 13

Many factors play a role in what chapter companies or people choose, to file for chapter 13 bankruptcy you will need enough disposable income (income left after taxes, etc.) for the debt repayment that will be drawn up under legal supervision by you. Under chapter 13 debtors have to pay back their debtors in between 3-5 years.

Advantages

The upside (as opposed to chapter 7) is that you have the ability to stop foreclosures and get a reinstatement on your mortgage as soon as the case is over. Additionally creditors don't have the right to collect on previously incurred debt only in special cases, so we can say that in most cases the debtors can keep their property.

Disadvantages

So what's the downside? A lot actually. The biggest disadvantage is that chapter 13 cases stay on one's credit report for 10 years and this is an obvious setback is you need a fresh start. Further loans can't be accessed without the chapter 13 trustee's permission and of course creditors may not want to give any money anyway to someone who has a bankruptcy case in their file. The banks may charge extra in this case, effectively blocking you from picking up a loan.

Rules

After you have filed for chapter 13 you will need to draw up a plan of how you wish to repay your creditors. This is not easy, especially for individuals as there are very strict rules you have to follow, and even some rules that change from state to state. Just one of the rules is that you have to invest every single dime of your disposable income into paying your creditors for at least three years. In general you should draw up a plan for paying regular amounts of money every period, making the plan consistent and believable. It is possible to deduct the payment from you paycheck too, in practice this method usually results in higher rates of success.