Chapter 13 Bankruptcy Explained: Why To File

Chapter 13 bankruptcy is used by an individual or business that doesn't want to liquidate in order to satisfy their debts. Instead, it is a restructuring of debt, which allows the business to avoid closure in order to meet their debt obligations. On the other hand, a chapter 7 bankruptcy filing allows the business to sell their assets to pay their debtors. As a result, any remaining debt is written off, which gives the business or individual a "clean slate." One of the advantages of a chapter 13 filing is that although the credit rating is affected the same as in a chapter 7 filing, this type is removed from one's credit rating in five years instead of the standard seven years. The purpose of this type of bankruptcy is for a struggling business to make its financial obligations, especially if they see some financial recovery in the short term and still have some source of income.

For both types of bankruptcy, the individual or business must first file a declaration of bankruptcy with the courts. This is why it is important to have legal representation in the event that you are considering bankruptcy. In many instances, it is possible to settle these debts without the court's intervention. Additionally, it is important to understand which filing will be best for you or your business, and it is simply impossible to do this without legal counsel. Furthermore, there have been many changes in bankruptcy law that will require a trained professional to navigate the necessary paperwork and filings. Many individuals have had their bankruptcy cases dismissed because they did not understand how to satisfy some requirements when filing. 

A bankruptcy lawyer can help the debtor draft a three to five year repayment plan to submit to the court for approval. This plan must be detailed to include all debts owed and any transactions and income the debtor expects to receive during the restructuring period. Once approved for a chapter 13 bankruptcy, a federal bankruptcy court will supervise the debt restructuring. This means the court must provide written approval for the business or individual to obtain a new line of credit.

A chapter 13 bankruptcy filing has many other advantages over other types. For instance, once a payment plan has been approved, the creditors are not allowed to contact the debtor about their debts owed except through the bankruptcy court. In addition, the court can halt a foreclosure proceedings while the case is still in bankruptcy court. A chapter 13 bankruptcy allows for a businesses to stay in operation, while individuals can regain control of their finances without having to sell their assets.