When times are hard and business goes wrong, an entrepreneur’s worst nightmare may come true: They may be forced into bankruptcy. The benefit of bankruptcy is that it provides people with a fresh financial start. However, this comes at a cost. A bankrupt’s record will always be in the system (and thus could be found by potential employers). Unsurprisingly, the result reduced trust placed in both an individual and a business. That said, bankruptcy should only be used as the ultimate last resort. It should never be used as a way to escape the threat of creditors.
Filing bankruptcy will immediately stop creditors from their pursuit. Following bankruptcy, debts can be organized methodically in line with the law. Bankruptcy makes it possible for debtors to eliminate and discharge the debts. Once bankruptcy is claimed, creditors will no longer be able to pursue a debtor. The bankrupt is permitted the opportunity to catch up on paying off their debts as much as possible. Crucially, foreclosure on a home may be stalled, as can repossession of a car and other material property. Restoration of utilities can also be enabled. Crucially, however, bankruptcy certainly does not solve every problem. It won’t be possible to eliminate the rights of any secured creditors, which have taken a lien as collateral for their loan. Creditors can be ordered by the court to take payments but the loan will never be destroyed.
There are two options; a Chapter 13 or Chapter 7 bankruptcy. With the Chapter 13 option, it is also necessary to submit a repayment claim, although the judgments of each particular case will determine repayment on unsecured debts. It will be necessary to pay priority claims such as taxes first, while unsecured debt such as credit card debt are classed as debts that may be paid later. General unsecured debts are paid off last, and this category may include secured debts on which the collateral has been renounced. When all requirements of a Chapter 13 Plan have been completed, remaining unsecured debt can be discharged. It should be noted that while federal law governs Chapter 13 plans, it does vary from state to state.
Bankruptcy cases involve real people losing real money. Devastation is often experienced by people who have founded a company and built it up over many years. That said, if you have any questions about what bankruptcy could mean for your career—reach out to PCW Law Firm for answers to your legal questions.