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Thursday, June 16, 2016

Understanding Chapter 13 and Chapter 11 of business law

Bankruptcy is the state of a person or organization that cannot repay the debts owed to creditors. This is usually initiated by the borrower and imposed via a court order. The federal laws govern the process of filing for bankruptcy. There are different chapters under which bankruptcy can be filed. The most common ones are the Chapter 11 and Chapter 13. Both these chapters are applicable to both Individuals and corporations. Understanding Chapter 13 and Chapter 11 of business law is very important to grasp the laws surrounding bankruptcy and insolvency in United States.

Chapter 13 Bankruptcy law


Chapter 13 (reorganization) is a common and well known bankruptcy code. It is also referred to as Wage earners plan. Under this law, debtors can propose a plan to make repayments towards a loan over three to five years timeframe. Chapter 13 is popular because it has a number of advantages over chapter 7. Under Chapter 13, individuals can save their homes from issues like foreclosure.

Under this chapter, the courts have the power to approve a chapter 13 without any approval of creditors. Chapter 13 is often viewed as a great way to consolidate debt position based on the cash flows of the debtors. However, there are also a lot more advantages of Chapter 13 filing.

Chapter 11 Bankruptcy law


When a corporation is unable to service its debts, it can file for bankruptcy under chapter 7 or chapter 11. Under this, the debtor (business or individual) can propose a plan for reorganization of debt. The filing of petition can be initiated by the debtor (voluntary) or maybe filed by creditors (involuntary). However, there are cases when an individual cannot file for Chapter 11. One example is if a prior bankruptcy order was dismissed in the last 180 days due to willful failure of the debtor to appear before the court of law. There have been numerous cases of corporate Chapter 11 bankruptcies in recent times. The largest chapter 11 was the case of Lehman Brothers in 2008.

Disadvantages of filing bankruptcy

There are certain disadvantages of filing bankruptcy to individuals. Under FCRA, the record stays in the credit bureau report of the individual for about 7 years. It is however, possible to obtain a new credit card or loan after about 1- 2 years of filing bankruptcy.
We have a sound understanding of understanding Chapter 13 and Chapter 11 of business law. Our specialists in the field of bankruptcy laws can provide advisory and legal services. Please contact us for any advice on debt consolidation, debt restructuring or bankruptcy filing.

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