About four years ago, I could tell that things were turning south with my business. Cash flow was tight, and customers simply weren't coming back to shop some more. I realized that if I was going to keep my house, I would need to do something to resolve my finances. Although it was scary, I decided to meet with a bankruptcy attorney. After I explained my situation, he helped me to understand the process and how to tell if it was a good idea or not. When I decided to do it, things started changing for me right away. This blog breaks down bankruptcy in layman's terms, so that you can decide whether or not it is right for you.
Chapter 13 bankruptcy is a process that allows successful filers to restructure the debts they owe. It's important to understand what is meant by restructuring, though, before you petition the court for relief. Here's a breakdown of what to expect.
Having a Plan
The centerpiece of Chapter 13 bankruptcy law is the repayment plan. When someone asks the court for relief under Chapter 13, they're asking for some room so they can resume payments of their debts. Typically, the plan will have creditors take a loss on part of what's owed so they can be paid the rest.
For example, a petitioner might submit a plan that calls for paying 80% of the total debts. If such a debtor owed $100,000, this sort of plan would require them to pay $80,000. Upon completion of the plan, the judge would dismiss the remaining $20,000. After that, the law would count the creditors as fully satisfied.
Timeframe
Normally, the repayment schedule needs to work within three years. Under some circumstances, a judge might allow a petitioner to request a 5-year repayment schedule.
Secured and Unsecured Obligations
One of the major appeals of Chapter 13 bankruptcy is that it permits the restructuring of both secured and unsecured debts. A secured debt is one backed by a real piece of property. The car attached to an auto loan is a good example of secured debt, as is the house attached to a mortgage. Generally, if a creditor can repossess something, the debt is probably secured.
Unsecured debts are ones that aren't backed by anything except what the law calls "faith and credit." Credit card debt is a classic example. There's nothing for the credit card company to repossess if you don't pay your bill.
Personal Debts
Most Chapter 13 bankruptcy cases involve personal debts. These are ones that you owe to other parties, as opposed to debts that a business you own might owe.
Some folks include business debts in Chapter 13 filings. These are primarily from sole proprietorships, a business structure that leaves the individual personally responsible for the operation's debts.
Creditors' Rights
Part of the appeal of Chapter 13 bankruptcy is that creditors' rights are fairly limited. While creditors can file objections to repayment plans, they have no right to submit alternative proposals. The judge will review the debtor's proposed plan and may make revisions as necessary. However, in Chapter 13 bankruptcy law, most of the discussion is between the court and the debtor.
Share30 December 2020
