When running a business or reviewing our personal finances, more often than not, we find ourselves lacking funds for something. If it’s something luxurious, most of us simply won’t get it unless it’s absolutely necessary. After all, bad credit loans are something all of us try to avoid. Still, when we need something for our company to grow, we’ll try to get a loan.
The more money we need, the bigger the loan’s drawbacks. So what happens if we can’t pay those loans back? Bills and debts start piling up, and you don’t know which way is up anymore. If you’ve drained every option and even bad credit loans are no longer an option, it might be time to declare bankruptcy.
Is that the right choice for you, and how will you get back on your feet afterward? Well, the US government came up with a few solutions, one of them being Chapter 11. But what is Chapter 11 bankruptcy?
Chapter 11 Bankruptcy Explained
By definition, Chapter 11 bankruptcy involves reorganizing a debtor’s assets, debts, and business affairs, which is why it’s also known as "reorganization" bankruptcy. Although it’s available to individuals and businesses alike, it’s mostly used by companies.
Commonly, the debtor is allowed to keep their possessions, is viewed as a trustee, may continue to run their business, and (with court approval) borrow money again. When a reorganization plan is developed and proposed, creditors vote on it; if it passes and fulfills specific legal prerequisites, it is approved by the court.
The purpose of the Chapter 11 bill was to help businesses regroup and set up a strategy for the future. This plan may contain modifying payment due dates and interests and can even remove a debt entirely.
How Does Chapter 11 Work?
All bankruptcy chapters, including Chapter 11, halt the collection process. Once filed, the "automatic stay" forbids most creditors from hunting you, giving you enough room to breathe and figure out your next move. This temporarily stops:
Removal or any kind of foreclosure
Till taps, property confiscation, bank levies
Unlike other chapters, Chapter 11 allows the debtor to act as the trustee, meaning that they can continue everyday business functions as a "debtor in possession" while Chapter 11 restructuring takes place.
However, the business can not make all decisions without court permission. Restricted decisions include sales of any assets other than inventory, creating or closing a rental agreement, taking out new loans, and controlling business operations.
The court also controls payment decisions and contracts related to attorneys, vendors, and unions. Ultimately, the debtor cannot take out a loan that will begin after the bankruptcy is complete.
Is Chapter 11 the Best Bankruptcy Option for You?
There are nine chapters in Title 11 of the US Code, each focusing on different bankruptcy strategies. Chapters 1, 3, and 5 explain the legalities of bankruptcy for all parties involved, including the debtor, creditor, and court.
The other chapters explain who can file for bankruptcy and how to do so according to who they are or whom they represent:
Chapter 12 is for family farmers or family fishers with regular income.
Chapter 15 is used in international cases.
Chapter 13 is for individuals with stable income and has certain debt restrictions.
Chapter 7 is the liquidation bankruptcy chapter for people who cannot create a reorganization plan and provides them with information on liquidating their remaining assets.
How to File for Chapter 11 Bankruptcy
Now that Chapter 11 bankruptcy has been explained, let’s go over the procedural part. It begins by filing a petition at the debtor’s residential area or incorporation location’s federal bankruptcy court. It may be a voluntary petition, filed by the debtor, or an involuntary one, filed by creditors that meet specific requirements.
Then, the creditors vote if the plan within the petition is acceptable. Since the next option is usually filing for a Chapter 7 bankruptcy, meaning liquidation, creditors are typically cooperative.
However, if a creditor objects to the plan, the court will get the input from creditors and other interested parties, before deciding on the best course of action. The determining factors include:
The creditors’ best interest
If it is fair and equitable
So how long does Chapter 11 take? Well, there are technically no limitations. Some cases take only a few months, but it often takes six months to two years for a case to close.
By Nikolina Cveticanin ·
When faced with debts that you cannot pay, it may seem like there is no way out. However, a bankruptcy discharge could release you from personal liability. Before taking any steps, it’s important to know what bankruptcy discharge means and how you can file for an order of discharge in your personal situation.
Given that the average American has over $21,000 in debt from personal loans and credit cards alone, discharged bankruptcy is a relevant topic for many people across the country. Here’s all you need to know about discharged bankruptcies.
The Bankruptcy Discharge Definition
When it comes to the bankruptcy discharge meaning, LawInsider.com defines it as “a court order that ends bankruptcy proceedings as old debt and hence releases the debtor from the responsibility of repaying certain types of debt.”
In essence, a discharged bankruptcy will free you from any obligation to repay the debts covered by the order of discharge. This also means that creditors can no longer take action against you in relation to those debts. Those actions include debt collection, attempts at legal action, and communication with you via letters or telephone calls.
A discharged bankruptcy may occur when you file a Chapter 7, 11, 12, or 13 bankruptcy. Before filing for a discharge order, though, it’s important to recognize the downsides of bankruptcy while also researching which debts can or cannot be discharged.
How Can You Get a Discharge of Bankruptcy Order?
Under most circumstances, debtors are automatically given a discharge during their bankruptcy case unless creditors object. So, by informing your attorney to file for bankruptcy, an order discharging debtor liability will be included as a part of the legal proceedings.
Assuming no litigation involving objections is posted, the Federal Rules of Bankruptcy Procedure will ensure that copies of the order of discharge are provided to the debtor (you), the debtor’s attorney, the US trustee, the case trustee, the trustee’s attorney, and all creditors. The notice of bankruptcy discharge proof also informs creditors that your financial liability has been dropped and advises them not to pursue any further action.
The length of time that it takes to acquire a discharged bankruptcy order depends on the bankruptcy chapter filed. Generally speaking, the timeframes are as follows:
Chapter 7 (for liquidation): Courts grant discharges following the expiration of a creditor’s complaint objection period, which is usually between 60 and 90 days after your 341 meeting. This generally happens four months after you, the debtor, files a petition at the bankruptcy court.
Chapter 11(for an individual chapter 11 bankruptcy): The courts grant an order of discharge once you have completed all payments under the bankruptcy agreement.
Chapter 12 (for an adjustment of debts of a family farmer or fisherman): The courts will also grant the discharge after payments have been completed. Due to the nature of this bankruptcy hearing, it usually takes between three to five years to secure the discharge after the filing date.
Chapter 13 (for an adjustment of debts for an individual with regular income): The order may be granted by the courts as soon as the agreed payments are finalized. Again, it often takes three to five years after the date of filing.
It should also be noted that you may be required by the Bankruptcy Code to complete an instructional financial management course. However, there are exceptions to this ruling, including a lack of adequate local educational programs or if the debtor is living with a disability.
Understanding the Inclusions of Discharged Bankruptcy Orders
When trying to work out how a bankruptcy discharge is relevant to your personal financial situation, you’ll naturally want to know what types of debt can be discharged. After all, bankruptcy discharge orders don’t cover everything. Section 523(a) of the Bankruptcy Code details a number of exceptions under each chapter of bankruptcy.
When filing a Chapter 7, 11, or 12, there are 19 categories of nondischargeable debts, while the list is a little smaller for Chapter 13. Below are a few examples:
Certain tax claims
Child support payments
Spousal or alimony payments
Guaranteed educational loans
Cooperative housing fees
While secured debts cannot be included, a valid lien or sale of the secured asset can be used to repay the debts, with the shortfall (remaining balance) subsequently being included in the order of discharge.
It should also be noted that obligations affected by fraud or maliciousness won’t automatically be exempted from a discharge. It will be up to creditors to post an objection to these. If they do not, they will be included in the order discharging debtor responsibilities.
Before filing for bankruptcy, it’s important to do your homework or speak to an attorney/financial advisor about the debts that can be discharged and the ones you would be liable to pay.
Bankruptcy Closed vs. Discharged
A bankruptcy discharge order doesn’t necessarily translate into a case closed. In a simple Chapter 7 bankruptcy without assets being lost, the closure should occur a few days after your discharge. When assets are being lost, any relevant litigation must be finalized before closure can occur. In cases where a repayment plan is needed, the closure won’t happen until after the trustee has confirmed the final report for payment distributions.
Generally speaking, it is only the Chapter 7 bankruptcy cases involving difficult assets that are kept open for long periods. Although rare, it is also possible for debtors, creditors, or trustees to reopen the bankruptcy case if a debt hasn’t been listed or if false information has been provided.
What Else You Need to Know About Bankruptcy Discharging
Before thinking about bankruptcy, you must consider the impact it will have on your financial future. For starters, you will still be required to pay secured debts, while the impact on your credit score will last for up to eight years.
Many people who file a bankruptcy worry about what it means for their career, but the good news is that employers are prohibited from discriminatory treatment of debtors based on their bankruptcy status. This covers both public and private businesses. Furthermore, bankruptcy courts may permit those who file for bankruptcy to run businesses even before the discharge. That’s why it’s important to stay up to date on the best business banking options.
A second discharge in a Chapter 7 case will be rejected if you have already received a discharge within the last eight years for a Chapter 7 or 11. This duration is reduced to six years for Chapter 12 and 13 cases. This is unless all unsecured debts from the previous discharge have been cleared.
Finally, you will be advised to keep hold of your bankruptcy discharge proof letter in case creditors attempt to take action against you after the confirmation. Should this happen, you will be in a position to file a motion with the court. Should you lose your copy of the discharge order, it is possible to request another from the clerk at the bankruptcy court for a fee. Electronic documents may also be available via the clerk’s PACER system.
By now, you should have a solid understanding of the bankruptcy discharge meaning in law and how it can impact your future following any proposed bankruptcy. Under the right circumstances, it can be an attractive option that removes some of your financial burdens while also putting an end to annoying calls and debt collection actions.
By Julija A. ·
Bonds are a good investment option for those seeking a return on their capital because they tend to offer a reliable and predictable income stream.
In this article, we will explain what bonds are and how they work. We will also discuss the benefits and risks associated with bond investments and share tips on how to get started in bond investing.
What Are Bonds, and How Do Bonds Work?
Bonds are debt securities that are issued by governments and corporations in order to raise capital for projects, expansions, and other purposes. When you buy a bond, you are essentially lending money to the bond issuer. In exchange for your investment, the issuer agrees to make interest payments at regular intervals, as well as repay the principal amount of the loan when the bond matures.
Investment bonds enable the issuer to secure cash flow at specified dates. From the investors' side, bonds are a low-risk investment with typically good interest rates. But not all bonds are created equal. Some are a better investment than others.
Characteristics of a Bond
Bonds come with a number of different characteristics, including the following:
Face value: This refers to the amount that the bond will be worth when it matures.
Maturity date: This is the date on which the bond will be repaid in full.
Coupon rate: This is the annual interest rate paid on a bond.
Yield: This is the return an investor will realize on a bond.
On top of these basic characteristics, there are a couple of other aspects that define a bond.
Some of the bonds are secured, while others are unsecured. Secured bonds typically have assets backing them that guarantee payment to bondholders if the company cannot meet its obligations. On the other hand, unsecured bonds are not backed by collateral and are a much riskier investment.
Different bonds also have different tax statuses. Most are taxable investments, but there are some government-issued bonds that offer tax breaks. These are typically used as a way to encourage investments in specific projects, such as infrastructure development. Tax-exempt bonds normally have lower interest rates than equivalent taxable bonds.
Knowing the difference between taxable and tax-exempt options is a critical part of understanding bonds. An investor must calculate the tax-equivalent yield to compare the return with that of taxable instruments. Most of the tax software available online can help investors with this type of math when preparing for tax season.
Callable bonds can be paid off before they mature. This commonly happens with call provisions, which allow companies to retire the instrument at any point during or after its term by prepaying them for a premium amount equal in value of interest earned on reinvested payments made over time.
An Example of How Bonds Work
So, how do bonds generate income for investors? Here’s an example that makes the aforementioned characteristics more tangible.
Let’s say the city of Chicago is looking to build a new community center but doesn’t have the funds for the project. So, it issues bonds to raise the cash instead of going through a crowdfunding platform or a financial institution.
Each community center bond has a face value of $100. This is essentially a loan each investor lends to the city of Chicago. It promises to repay the loan in 10 years, which is the bond's maturity date.
However, to be able to sell as many bonds as possible, Chicago also has to entice investors to loan them the money. This is where one of the many important bond features comes in. The coupon rate is, in essence, a yearly interest rate that Chicago will pay to its investors. For this example, let's say that each bond has a 5% coupon rate - each investor will receive $5 each year.
After 10 years, when the bond is due, each investor will have yielded $150. Chicago will pay back the principal of $100 as the bond matures, which, combined with $5 of fixed income over ten years, makes quite a decent investment.
Benefits of Investing in Bonds
There are a number of benefits associated with bonds as an investment, including the following:
Bond prices are generally less volatile than stock prices, which means that they can provide stability for your portfolio. The majority of bonds are issued by governments, which are typically considered stable and less likely to default.
Bond interest payments can provide you with a source of income. While the coupon rate is rarely as generous for the smaller investment as in our example, investing in multiple bonds with a solid coupon rate can turn into a decent annual income.
Every investor knows that a diversified portfolio can make all the difference. Adding bonds to your portfolio can help to diversify your investments and reduce overall risk.
Types of Bonds
There are many different bonds, including government bonds, corporate bonds, agency bonds, and municipal bonds.
Federal bonds are issued by the Department of the Treasury. There are three different types of bonds issued by the Treasury. Also referred to as "treasuries", these have different names based on the maturity date. Those that have a year or less to maturity are called "bills", while those with up to ten years of maturity are known as "notes". Actual "bonds" are those that have over ten years to maturity.
Corporate bonds are often issued by companies that need loans much larger than angel investors, VCs, or banks are willing to provide or cannot find bank loans with favorable terms. Corporations often find it more affordable to issue bonds than to go with bank loans when the interest rates and terms are taken into consideration.
Municipal bonds are issued by states and municipalities to fund different projects. Investors will often find bonds with tax-free coupon income.
Agency bonds are issued by organizations affiliated with the government, such as Freddie Mac or Fannie Mae.
Risks Associated With Bond Investments
These investments are not without risk. The biggest risk is for the bond issuer to default on the loan, which could result in the loss of your principal investment.
Additionally, bonds are vulnerable to market fluctuations, which leads to price volatility. This is partly linked to the bond’s interest rate, meaning that rising interest rates can cause the price of bonds to fall. Finally, bonds are also subject to credit risk, which is the risk that the issuer will not be able to make interest payments.
All in All
The most important thing to learn about bonds is the different types of bonds and the risks associated with each type. You should also know your investment goals and objectives.
Bonds, as fixed-income securities, can be a good addition to an investment portfolio but aren’t the right option for everyone. Finally, it is important to remember that bonds are subject to market fluctuations, so you should never buy bonds with more money than you can afford to lose.
By Vladana Donevski ·