Reasons to File Chapter 13 Bankruptcy
Amongst other things in life, one can be sure that politics and business are constantly subject to change, not simply because of the relationship they have with each other, but also because of world events.
Sometimes in the Western world we become complacent, making hay whilst the sun shines and paying little or no regard to the inescapable truth that eventually things will change. This is especially true of economies, and in recent times we have perhaps seen the results of growing complacent.
There has been a surge in people wanting good advice about their finances in the light of the world recession. With so many businesses going under or “streamlining” unemployment rates have climbed and in turn, many people have become bankrupt.
Chapter 13 is what is known as a repayment plan. On filing chapter 13 the court examines all outstanding debt and the income of the individual (this has often already been done if the individual failed the chapter 7 means test). The court then works out a repayment plan, which involves creditors being repaid over a 3-5 year period.
Whilst this may sound simple enough, the terms can be quite harsh, leaving the individual or business in a cash poor situation until the debts are repaid and the bankruptcy discharged.
Chapter 13 can be advantageous however. For example, if a business or an individual has fallen behind on payments due to short term cash flow problems, chapter 13 gives them the opportunity to catch up. In addition, unlike chapter 7, no property is sold, so particularly in the case of a business, keeping the assets intact means that the business can operate as normal.
Not only do assets not have to be sold, but in the case of a business, if the debtors include suppliers of equipment and they are owed money by the firm, once chapter 13 is filed the equipment cannot be repossessed. However, the advantage for the supplier is that they are likely to be paid in full, although the payments will be delayed somewhat.
Chapter 13 is therefore a far more satisfactory form of bankruptcy to both the business, (if it means it can keep trading after bankruptcy is discharged), and the creditors who may well find themselves out of pocket under the alternative chapter 7 bankruptcy.
Bankruptcy should not be entered in to lightly and is a stressful experience. If you would like more free information regarding declaring yourself bankrupt, visit this free website declaring yourself bankruptwww.declaringyourselfbankrupt.net.
Restoring Credit Rating Post Bankruptcy
The fact is, after bankruptcy life changes, and if you want to restore your financial position, there are certain strategies one can use to improve one’s credit rating, but these are greatly helped by including them as part of an overall strategy prior to filing chapter 7 bankruptcy.
Tip 1. Creditor’s Accounts.
It’s important that you understand how your credit score is compiled. It is not just a single agency that gives the rating, but data that the agency receives about your credit position from your creditors. This is analysed and your score worked out.
If you can persuade your creditors, and it doesn’t have to be all of them, to stop reporting your credit score with them to the credit agencies, which is perfectly legal, this will have a beneficial effect on your credit rating.
Tip 2. Your Plastic Cards.
You may be surprised to know that credit cards, used properly and paying the balance off each month can help improve your credit rating, because the powers that be see you acting responsibly. So, even if you have vowed never to use one again, it is in fact a good idea to try and get a credit card after bankruptcy.
Tip 3. Get a Secured Card.
A secured credit card is a credit card that is limited in its credit limit to an amount equal to a deposit with the card issuer. In other words, you give the issuer a deposit of say $200, and the limit on your card is $200. This may raise the question as to why not just have a $200 cash budget and no card.
Cash spending is not seen by the credit agencies. Credit card spending is, and if you pay the balance every month this will be seen as responsible spending, and your credit rating will improve. In addition, there is no danger of getting into credit card debt again as the maximum limit is covered by your deposit.
Just be certain that the card issuer is registered with the credit bureaux, otherwise the card will have no bearing on your credit score.
Tip 4. Get Included on a Friend’s Credit Card.
If you can persuade a relative or friend (with a good credit record) to add your name to their card, you will benefit from their history and this will improve your rating. The other person’s rating is not affected by your bankruptcy and you do not even have to use the card, it can be totally passive.
However, you will be affected by any lowering of the other person’s credit rating.
For many people however, harsh economic events have conspired to make repaying their debts impossible, and has left them considering how to claim bankruptcy. If you are in that situation and need more free advice, visit www.howtoclaimbankruptcy.net.
Your Business, Chapter 7 And You
Chapter 7 bankruptcy is open to individuals, sole traders, partnerships and corporations. This article will concentrate on the implications for chapter 7 bankruptcy on businesses.
Entrepreneurs base their businesses on risk, calculated risk. There is an old saying that “one has to speculate to accumulate”.
We have recently witnessed one of the biggest financial crashes of modern times, which has caught many businesses and individuals out, with devastating results. Whilst some sectors of the economy have been saved by government intervention, many have not, forcing many individuals and businesses into bankruptcy.
Whilst chapter 7 bankruptcy is often the favoured chapter for the individual as they emerge debt free and with a financial clean slate, (despite having to have had all their assets liquidated), it is not always the preferred chapter for business.
This is because a chapter 7 filing for a business is basically an application for the liquidation of its assets. It is the same for all business, regardless of size.
The most important thing to do from the beginning is employ the services of a lawyer. They will guide you through the process, and ensure that you meet any criteria for filing. Whilst this may seem like an unnecessary expense, incorrect filing of a claim can cost you money.
Another aspect of chapter 7 that is appealing to some people when under pressure is that once filed, no one may contact the individual or business seeking payment of debt. In other words their creditors are not allowed to chase them for money. This is sometimes reason enough to decide to file under chapter 7, but may not be the best option in the long term.
The court, under chapter 7, appoints a Trustee who assumes control of the business and arranges the forced sale of its assets and the distribution of the monies thus raised.
The whole point of chapter 7 is to raise as much cash as possible to ensure creditors are recompensed as far as possible. Once the proceeds of the liquidation have been distributed, there is no further liability on behalf of the debtor who is then debt free, (certain debt including alimony, tax and student loans cannot be discharged in this way and always have to be repaid in full).
This is why it may not be suitable for business. It is easy for the sole trader or directors to seek a way out, but they need to consider the fact that if they simply file under chapter 7 all is lost. Years of work building a business simply goes out of the window.
Taking professional advice may result in finding that they could in fact stay in business by filing chapter 11 for example. This involves a legally enforceable repayment plan, where the creditors have their existing financial arrangements altered slightly, effectively giving the business time to catch up. This is only allowable where the financial situation allows; in other words if the company has been through a bad patch but the order books are now full, it may be that a rearrangement of debt will allow the company to pay its debt and then continue trading into the future.
When financial times are hard you may suddenly discover that what were easily manageable levels of debt are now no longer affordable. You may start to seriously consider declaring yourself bankrupt. For more free advice visit www.declaringyourselfbankrupt.net.
Chapter 7 Bankruptcy Now Has A Means Test
Of all the various chapters for filing bankruptcy in the US, chapters 7 and 13 are the most popular. In fact 85% of all filings are under chapter 7, probably as this is perceived as the “best” type of bankruptcy, leaving the debtor free from any debt on discharge, unlike chapter 13 where debts have to be repaid under a repayment plan.
The biggest attraction of chapter 7 bankruptcy is that despite the fact that all ones assets are sold and the proceeds distributed amongst creditors, an individual is then debt free. And therein lies the problem.
The problem is that it is possible that the sale of an individuals assets will fall far short of the amount of money owed, leaving creditors out of pocket by some distance.
Often this is just a sad reality of life, but until a few years ago chapter 7 could be used by the unscrupulous simply to get rid of debt that they could in fact afford to repay, albeit with a little rearranging of their debts.
To get over this problem, the 2005 Bankruptcy Abuse prevention and Consumer Protection Act bought in a means test. This is only applicable to individuals and consumer debt.
The means test was introduced to ensure that only those who genuinely cannot repay their debts can claim chapter 7 bankruptcy.
The means test works by taking the applicants average earnings over the past 6 months before filing, and deducting certain monthly expenses to arrive at the net “disposable income”.
If you fail this part it gets a little complicated, as the court then decides if you are in a position to pay off at least some of your unsecured debt.
If you income is found to be greater than the median then you have to go through some complicated calculations. The problem an individual faces once they fail the first part of the test, is determining if your “disposable income” figure is sufficient, after paying monthly “allowed” expenses, to pay at least a proportion of your unsecured debts (credit cards for example).
The problem here is that different states have different rules as to what are the allowed amounts for day to day living expenses. However, if your “disposable income” is more than a certain amount, you fail the means test and are prevented from filing for chapter 7.
Bankruptcy is a drastic step, in spite of what other people might say to you. It can destroy your financial future as your credit score drops. Although chapter 7 is the most popular form of bankruptcy, it might be worth looking at chapter 13 bankruptcy law. If you would like further free information and advice, visit www.chapter13bankruptcylaw.net.