Chapter 12 Bankruptcy

Bankruptcy was designed to help individuals or companies get out of difficult financial situations. There are six types of bankruptcies; each fills a different need. In some situations, all debt is forgiven, allowing the individuals involved to start over. Other times the bankruptcy court approves a reorganization of debt, giving the individuals relief from creditors and more time to repay their obligations.

Lawmakers felt that farmers and fisherman had unique situations. Chapter 12 was designed just for them. The farmer or fisherman must be able to prove regular annual income. The court recognizes their income is seasonal and that weather and nature affects their potential to earn money. With a Chapter 12 the debtor proposes a reorganization plan to the court. Basically this gives them more time to repay their debt, typically three to five years.

The court defines family as an individual or individual and spouse and a corporation or partnership. They have to meet other criteria such as: proof they operate the business for profit and debt can not exceed a certain amount (defined as fixed or variable)at least 50 percent of the income must come from farming or fishing.

For corporations, more than one-half the outstanding stock must be owned by one family or one family and its relatives.

Chapter 12 bankruptcy begins when a petition is filed with the bankruptcy court. This automatically stops creditors from contacting the debtor directly. A trustee is appointed to collect payments from the debtor for distribution to the creditors. All creditors are notified and given the opportunity to appear in court. The debtor has to provide a complete disclosure of all assets, obligations, financial statements and all sources of income. They present a repayment plan to the bankruptcy judge. The judge approves the plan or they can recommend a Chapter 11 or 13 instead.

Debts are classified as:

• priority
• secured
• unsecured

Priority claims are paid first, and unsecured claims are paid last. Once the repayment plan is approved it is binding on debtor and creditors. When the trustee determines that all obligations were paid as agreed, they request a discharge.

Bankruptcy is never easy but it’s sometimes necessary. It does affect your credit score and can remain on your credit report for up to 10 years. The best way to reestablish your credit after a bankruptcy is to make all payments, after the bankruptcy, on time.

Margaret Norton, a Personal Life Coach/Writer/Speaker, resides in St. Peters, Mo.

April 11th, 2009 by admin | Posted in Personal | (0)