by George Leard

Created on: June 05, 2010   Last Updated: June 07, 2010

What is Chapter 13 Bankruptcy?

Why choose it?

Differentiate between 7 and 11

 Chapter 13 Bankruptcy is a US court proceeding in which a debtors submits themselves to complete financial reorganization, under the supervision of the courts.

 The debtors is forced to concede and follow through with the establish plan to eliminate all outstanding debt within a maximum of five years.

www.investiopedia.com

Creditors are entitled to receive substantial payments, mostly from all incomes earned during the period, while debtors are able at the same time, to save their businesses as well as pay very low interest rates while servicing the debt.

  This kind of bankruptcy is only available to businesses that are earning incomes, and needed the time to make adjustments, while their assets are safeguarded by attorneys specially trained in this area. www.bankruptcyhome.com

Companies that are facing financial difficulties but are still generating revenues will most likely choose this kind of bankruptcy options, because their continued excellent performances will eventually lead to their salvation in the near future.

 The Chapter 7 format ,requires companies to completely cease all operations and hand over to appointed trustees, who will immediately begin the liquidation process, so that all creditors can be paid, this option differs from chapter13 , which allows the debtors to continue operating, while making fixed installments. The creditors under chapter 7 are paid based on their levels of credit risk, with the lowest being paid first. Their levels of risk are deemed low when the have excellent collateral like mortgage to protect their investments.

 The creditors under chapter 13 has more excellent chance of receiving payments as against chapter 7, where the low risk ones, because of the absolute priority principle,  are paid first, and all others paid out of the remaining balance.

 Chapter 11 Bankruptcy name after the US code 11, allows the reorganization of debtors business operations during a specific time period. Their debts are restructured so that they can start a fresh with better financial ratios in place.

  However, this option is often very expensive, and corporations must do quality analysis, before going this route and make long term commitments.

The images, share prices, and consumer confidence in of these companies, may take years to restore, after entering chapter 11 bankruptcy, and Chapter 13, should always be given priority consideration.

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